Foreclosure Rehab or Duplex?

Question

I'm new to the REI market but actively seeking my first investment. I am debating on whether or not I should pursue a foreclosed home and renovate or buy a duplex.

-I have found a foreclosure in my general area for roughly $49k, which does need some labor on the inside (unclear without an inspector). I could do some of the interior carpentry, painting, etc. And I have a great network of contractors I currently insure at the agency I work for.

-I have also found a duplex listed for $108k just outside of a busy (downtown) street in Chestertown, Maryland. May need some TLC but currently housing two tenants. Rent in the area averages just under $1k/month conservatively.

I would appreciate any advice, suggestions, & criticism.

Thanks

Ray Slack · Answer

Well give us a bit more information. Do you plan to "Flip" these or keep them as rentals? What are the estimated rehab costs on the $49k property and would would it be worth when you are finished? what would it rent for? What is the rental market like? On the duplex are you getting 2 units? or just buying 1/2 of a 2 unit property? you say market rent is $1,000 is that per unit? meaning $2k a month for both units? Both the areas Centerville and Chestertown seem like fairly Rural areas or small towns.. These small towns generally have very low turn over rates and property is hard to sell.. They also tend to have slow appreciation.. The plus side to that is the rental returns are usually very high.. You should be getting a net cap rate or "Cash on Cash " return of at least 15% in a rural area after all expenses from a rental.A few more questions:1. Do you plan on paying cash for the properties or getting a mortgage? 2. Do you own the home you live in or do you rent?The best advise I can give is do a LOT of research before jumping into buying something and don't trust what your realtor tells you something will rent or sell for after you have rehabbed it.. They tend to make your profit seem much rosier to get you to buy the property in the 1st place. Sorry the more information you can give us the more we can help.. BTW although my area says Miami Beach I go back and forth between Maryland and Miami Beach and 1/2 of my investment properties are in MD.

Jessica Monroe · Answer

@Chris Willis & @Ray Slack I am also looking about doing a 203K on a few fixer uppers - I would buy & hold on to for rental properties. Any issues you ran into right away while applying and throughout your current process? Are you using to flip / live in / rent?Thanks guys!Jess

Ray Slack · Answer

Yes. That works.. The only issue is that a good accountant will have you "write off" every expense to reduce your taxes.. The bad thing about that when you are self employed is that a lender will only use your net income after deductions to qualify you for the loan.. Let's say you make $100,000 a year and are self employed and you have a great accountant and have $80,000 in deductions. The lender will only use $20k in income for qualifying income. it's best to get 2 years of tax in front of you and then speak with a lender on the phone. On the flip side if you haven't been deducting a lot of expenses (Also know as paying a lot of taxes) you should be okay with being self employeed. Depending on your revolving debt you would need $20k to $30k in "net income" to qualify for a $100k loan

Chris Willis · Answer

@Ray Slack No problem, I appreciate you looking out. I have been self-employed/independently contracting (personal trainer) since February of 2012 and just recently took this position at an Insurance agency . I know being self-employed may cause some obstacles but I should be able to provide my tax returns to the lender? Would that be sufficient stability? I am still doing work as a trainer btw.

Ray Slack · Answer

Chris,I really think you need to speak with a lender.. Based on my geeky research (I'm not stalking you ; ) it looks like you have only been in your current line of work for 5-6 months.. Most lenders are going to require you been at the same job or at least in the same line of work for 2 + yrs to get a loan, but definitely speak with a good lender.. If you need the name of a good honest one in Maryland I have a really good guy in Annapolis.Ray

Chris Willis · Answer

@Kyle GreggFirst, I would ask what you plan to do with the property? Do you plan to rent or flip? Is this your first property? And were there any difficulties in acquiring the 203k itself?

Kyle Gregg · Answer

do you have any specific questions?

Chris Willis · Answer

@Chris Simmons Haha thanks, sounds easy enough right?@Kyle Gregg absolutely, I would appreciate more info.

Chris Simmons · Answer

How about both? Buy and renovate a foreclosed duplex.Man I'm good. You set em up....I knock em down. Ok....who's next?

Kyle Gregg · Answer

Do you want more info on the 203k? Im no expert but im in the rehab phase of a 203k right now.