Phillipsburg NJ - Row house??

Question

Once I made the decision to start flipping towards the end of last year I was eager to begin. Maybe too eager? There was a property being auctioned the day after Christmas. It was listed as a lender approved short sale auction. I won the auction on a 2 bedroom 1 bath "Row house" at 25K. While the auction was running I applied for a 30K signature loan from prosper which I was approved for it was a 5year loan at 23% interest. (I know it is a crazy rate) When the auction house wanted proof of funds I sent them the loan approval email I got from prosper while the funds were being transferred. They accepted this.

Then it happened. The prosper money was bounced back to them. You see Prosper will only transfer into a personal checking account and what I thought was a checking account was actually a prepaid debit card account with a check writing feature. ??? Anyway, since I didn't have a checking account they "unwound" the loan. So I immediately applied for the same amount with Sofi because they said they could transfer into a savings account. I was approved and got the 30K payable over 7 years at 9%. (So much better) The day the funds were deposited in the account the listing broker contacted me for another proof of funds which I was able to supply. We then finished the formal offer paperwork and I then got to go see what I was buying.

It is the middle slice of a three unit property. Each property directly owns the land slice from the front to the back which is why I say row house. However, once inside is becomes clear from the house layout that it was at some point a duplex that was merged with the single unit home next door because in addition to my front door there is a door into a hallway that runs through the house to the door to my back yard and each side of the hall is the original clap board that once was the outside of each house. The space above it on the second floor is also unused space but the finished attic room does extend over this area. I then traced back through the county title records to a deed in 1947 that gave an easement to the property next door for access to my property for the maintenance of the back of their wall which is now inside my house since the two buildings are joined together.

Otherwise, the roof needs to be replace and some leak damage fixed and the property is dated but livable. I invited a structural engineer to the property who told me there is no structural issues with the house and the wall that runs along the hall is not a load bearing wall but to extend the living room, dining room, kitchen and bedrooms into that space would require at least 3 foundation footings, a foundation beam and a 1 hour firewall to be built. It is kind of fuzzy on if the firewall would just have to be built in the areas I would renovate. (first and second floor) or if I would have to rip apart the attic to build the wall to the roof.

He suggested that I might make more money by just updating the house and ignoring the hall. It just bothers me to not use this space to improve the house with bigger rooms, some closets and possibly a new half bath.

Even though it was a lender approved short sale auction I am still waiting for the mortgage insurance approval of the deal since the begging of January. How am I going to pay for the renovation you may ask. Well, I haven't quite figured that out yet but as I am going to list my own house for sale this month I may be able to use some of that money. The answer may present itself when the time is right. (yes, I know my approach to this is more like gambling then investing but I am in the water now.)

Kelly Jones · Answer

Hi Abacus Avenue was unlicensed to be conduct any real estate business at that time I would ask for a refund and avoid exsorbant fees.

Donald Dienst · Answer

UPDATE: Ok, this is what happened. I put my house on the market and immediately found a house that I love. It is a 4 bedroom 2 bath house on a river but not in a flood zone. It is an odd distressed property so it may not have made a good flip as to get it fully updated would cost too much but I actually liked it's quirks so it worked for me. The Issues were it needed an expensive septic system and a well installed and is built where you would need to go outside to get upstairs to the other 2 bedrooms, spare room, and the 2nd full bath. The downstairs hasn't been updated since it was built in 1960 but other then that it is just fine. The house is classified as a 1 family and since it is on a river in NJ it can never be re-purposed to a 2 family. NJ EPA laws. The previous owner already had the engineering completed and the permits just needed the contractors identified to issue the permit for the septic and well.I bought the house for 85K and used a homepath rehab loan which, since I am going to be living in it, has a low down payment that is only slightly higher then a 203K loan's down payment. I needed to use the homepath loan because in order to make this happen I had to rent out my current home; since I was getting 0 action on it because it is in a flood zone. With the 203k loan you can't own another home within 200 miles of the one you are buying but you can with the homepath rehab loan. FYI, I also found out that the homepath rehab loan can also be used by investors with a 20% down payment. So after the well, septic, and some minor repairs were budgeted and contractors selected the final loan amount is 170K. The banks ARV appraisal came in at 210K which I thought was a bit low since the recent sold comps for the neighborhood looks like a 4 bed 2 bath homes had recently sold for 300K to 350K however having to go outside and since I was not updating the home cosmetically I suppose it is possible. Yet I don't think they considered it was on a pristine stocked fishing river bordering a state park as there is nothing comparable for these features. But once I decided to rent out my primary residence I hired Abacus Avenue Property Management and they had it rented in less then a month. I then put my stuff in storage, bought an old motor-home and moved into a campground near the property I am buying while closing the deal and during repairs. The downside to all of this is that in order to pay for the storage, Moving of stuff twice, the motor-home (which I plan to resell), the camp rent, and down payment. I had to use the money I borrowed to buy the auction property I was going to flip and had to exit that deal which had a clause that if it took longer then 3 months either party could exit without penalty. Leaving me very cash poor. The upside is when done I will have an additional 40K of equity, A 2 bedroom hotel style apt that the town will let me use for short term rentals (airBNB) up to 14 days per stay, make back some money on the motor-home hopefully, be able over time to update the homes interior, and in the future before selling add an internal staircase to make the house a proper 4 bed 2 bath home supercharging the equity value. And to top it all off I found an unbelievable very professional responsive general contractor! What bothers me is I see another awesome deal nearby but don't have the funds to flip it.

George P. · Answer

you are correct... the best way to learn to swim is to jump in. Noone got rich by staying on dry, comfortable land.