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Updated almost 5 years ago,
Foreclosure Buy, Rehab to Refinance? What I have Learned
Episode 1: Foreclosure Buy
What do tons of people do after reading Rich Dad Poor Dad. They start looking into real estate, trying to find an income producing asset to increase their wealth. So after reading and going to the seminars (which were mostly B.S.), myself and my father started an LLC. We created a company to start our real estate careers and protect our future assets. Next we started to look. Look online, look locally and contact with brokers as well. When you are new to the game it can be tough to start out. Know the lingo, know your numbers and know what works best for you. Don't over extend yourself to quick. A lot of deals online won't make sense by the numbers, its a last ditch effort to oversell a property in many cases. But..... I paid for a foreclosure website, that would show pre-forclosures, foreclosures and auctions from all around the US. I looked for three months on all the sites and all the databases for a good start to our investing career. Mostly focused on multifamily apartments. (Which is our main focus now. Send anything my way if you are an interested seller.)
I won a number of auctions online and all were rejected by the bank for not reaching the reserve or the minimum they want to make off the property. FINALLY after 4 auctions I finally won and was accepted for a bid on a SFH right in the heart of my home town. (East End of Long Island) My bid was accepted at a number I didn't believe. The winning bid was $ 168,000 in an area where comps were ranging from 400k to 750k. This was a home run...until I had to deal with an eviction.
Episode 2: Rehab
This eviction was frustrating, but a great learning experience and really a win win. After a few months, a court appearance and a cash for keys negotiation, we finally gained access to the home. It was mistreated, lacked utilities and of course outdated. There was a lot of work to be done, we had the plan to put as much as it needed into it to become a rental as we could. Not to be cheap, but to keep our cashflow high. After some hard work, learning experiences and learning new trades, we reached a decision that the house would become our residence. It was turning out too nice and the area too ideal. Eventually through all the improvements the all in budget was 240k, which was still great. We had planned for less, but thats the way it goes. Especially in a foreclosed home, there can be many things wrong that you don't get to inspect before you buy it through auction.
Episode 3: Refinance
After 7 months of rehab, most of it DIY, it was time to refinance. The home was bought with a line of credit, so to pay it back we needed to cash out refinance. The problem arose that I personally did not own a majority share in the company. (50/50) The company had held the title for 8 months at the time and we decidedly transferred title to myself, thinking this would make the process simpler. WRONG. The title would now need to be held another six months in my personal name to refinance according the the mortgage company. Currently still trying to refinance as soon as possible and hoping to not wait the six months. My thought was the property was held free an clear by the company in which I own half of. This wasn't the case in the brokers eyes. Would be thankful for any recommendations provided.
The house now has a value between 420k-450k, with an all in budget of 240k. Looking to get as much from the cash out refinance as possible, when it goes through.
Here are the before and afters. Any questions or advice about the process, moving forward or bigger and better deals PLEASE reach out!