What Would You Do? All perspectives would be appreciated.

Question

I'm new here but I'll post my introduction in another forum.

I inherited a property that was bought by a family member way back in 1998.

It was purchased for $35k but is now worth around 260k. For the past few years, I have been using it (on paper) as my primary residence.

Here are the issues:

1. It probably needs 50-80k worth of work for it to become sellable or even rentable.

2. I don't want to sell it as is and my credit score is challenged to the point that I can not get a HELOC or a cash out refinance (which would be ideal). Nor do I have a partner or a co-signer.

3. Hard money lenders are trying to charge me over 12% interest with 4-5 points, which is very expensive if I were to sell it and I don't think I would be able to sell it without paying capital gains taxes on the property once a new lender steps in - as it would change from being a primary residence to an investment property.

so....

1. What would you do to get this renovation financed? It doesn't have an FHA loan on it - just a small conventional mortgage. Reminder: I dont have the credit to get the HELOC, cash out refinance, or anything I have seen. It will take a while to rebuild the credit - so no need to mention that.

2. The property is in a prime location in Pittsburgh. Would you renovate to sell or mainly focus on renting (BRRRR -ish) - I feel that with this equity (if I can ever get to it), I could get a 4 unit somewhere.

3. How do you find accurate numbers if you're using HML to make sure that you're not underwater in the end?

4. Lastly, how do you find a trustworthy GC (especially during labor issues)?

Thanks for reading and any assistance would be greatly appreciated.

Nathan Gesner · Answer

First, welcome to BP and thanks for posting!Second, if the property is in a "prime location" in Pittsburgh, why would you have to put $80k into it before renting or selling??? You're living there, right? That's clear proof that it's habitable and could be rented or sold, particularly in a strong market like we have today. If you dump $80,000 into it, that doesn't mean you'll increase the price $80,000. In fact, you may only get a 60% return on your money. You are usually better off selling it below market but still for a good price.I would start by focusing on your personal finances. Get your budget in order, learn to save, and fix your credit. Once you've demonstrated you can do that, sell the property and use the money to start investing. This also gives you plenty of time to educate yourself on real estate investing before you jump in.

Anthony L Amos Jr · Answer

If there is room to pay a lender back with a refi after rehabbing I would def look into getting a renter in it and keeping it, taking any cash leftover and invest in something else. If the numbers workout you can find lenders that will pay for the rehab but you may not be able to escape the high interest due to credit and experience. But that's ok if the numbers still workout when analyzing. You maybe be able to get around at least 195k (75% ARV) out with a refi if the lender's appraiser agrees its worth 260k. Subtract closing, mortgage, lender, and rehab costs to get an idea of what you'll have left over. Keep calling community banks that will work with your credit situation on the refi, raise private or hard money for the rehab (get fees associated upfront so you can calc.) and reach out to other investors in the area that can help guide you through the process for a share of the take home after refi. Seek to Serve or Pay to PlayGood Luck!!

Jim K. · Answer

Ken, I doubt that your money habits have any any time in your life been worse than mine were when I started. I used to be the poster boy for stupid money habits. I didn't mean to be a jerk about this talking to you, I just assume everyone here on BP, especially Pittsburgh investment people, has read at least one of my past posts here detailing my stupid money behaviors. Let me put it this way. when I started, I lived in a $150K condo in Ross with a $400/month HOA fee. The place had tennis courts, a swimming pool, a clubhouse. Darling little playgrounds every fifty or so townhouses where little kids could play. We had bought three brand-new cars off the showroom floor in six years. I have no kids, don't swim. Tennis? Don't make me laugh.I now live in Munhall, in the bottom floor of a duplex I paid $45K for and I rent out the top floor to Duquesne and Pitt grad students. We have not bought a new car since. I try not to be tacky about this online but we're doing well with real estate. Our last acquisition was a 7-plex in Carrick.Have you read "The Millionaire Next Door" and "Your Money or Your Life"? Heard of the FI/RE movement? Changing the game and getting your credit score to where it needs to be is more than erasing your consumer debt.

Scott Mac · Answer

Hi Ken, And you can't rent it as is ???? A good professional cleaning by a crew of apartment turn maids, some new cheap walmart slat blinds, and a pro applied coat of Agreeable Grey paint on all walls (or put it on yourself) with white trim and you might not get market rate rent, but maybe close. Stains on the walls--try one of the specialized Kilz primers. It may need some curb appeal to draw a better group of applicants than crackheads too. Stained carpet--some carpets can be dyed or just left in place with lower rent. It won't be perfect, but save the rent money for future improvements. As long as the roof doesn't leak and it doesn't have stablok breakers or similar life hazards, you MIGHT be able to draw a decent renter looking to save some money. Just my 2 cents.

Jim K. · Answer

@Ken HowardThe rest of it past "I get get a loan" is frou-frou.Spend the next few years living in the property, rebuilding your credit, paying off the mortgage, making important decision about your personal finance.And then...go as hard as you can.If you try to make moves right now, with the money habits that put you in this position, you'll end up like every other chump out there who tries this in half-a**ed way, just deeper in debt with nothing to show for it.

Account Closed · Answer

It is you primary residence “on paper”. Does that mean you are living in an apartment but using the house address in your tax returns and stuff? IF yes, you wouldn’t pay capital gains. Also, since you inherited it, you wouldn’t pay capital gains. You indicated that it’s worth $260k. I agree with @Nathan G. You shouldn’t put money into it unless you get at least 30% more than you put in. It sounds like you don’t have cash and that you credit is bad enough that you cannot get a construction loan. In other words, you can’t afford to put $50-80 into it, so it seems like that shouldn’t factor in to your decision at all. It seems like your options are to sell it or keep it, but not to fix it then sell it or fix it up and keep it. I’d sell it. You’d walk away with at least $225k in your pocket.

John Mocker · Answer

Ken,From an Insurance perspective one caution. If the house is actually vacant you need to check your policy. Most standard Home or Dwelling Fire policies have clauses that reduce the coverage when a property is vacant or unoccupied for more than 30-60 days. You may need to get a Vacant Dwelling policy to provide the needed coverage (vandalism, pipe bursting, etc.). Talk to your agent to see if the current coverage is the right one for this property.

Ken Howard · Answer

Dude, its the utilization on one card that is now paid. Please. In fact, my actual money habits are better than most as I dont have any consumer debt. Thanks though.

Issac San Miguel · Answer

in my opinion then, 12% seems high with the leverage you have. let melook at it for you. i sent a dm.

Ken Howard · Answer

I can change it from being my primary on paper. my real primary is in another state.