Buying House Next door

[Nicolas Yopp]

This will be my first investment property.

This just was posted for sale and my wife and I have always talked about the potential to buy this house. This house is currently a rental and has been for the last 10-15 (maybe more) years I believe and it needs quite a bit of work. New windows, doors, siding, the roof is metal so can paint it, and new everything for the interior. My thinking with this is there's an opportunity to build an garage ADU in the rear of the property which we can build first, get someone in there while the same rental is stays at the house if he wants to stay. Then remodel and/or add-on for the main house. While we are not quite ready to buy it, but the opportunity is now there. I'm a design - builder, so I can design the ADU and the renovation of the house. Don't think I'll have as much free time to build it myself, so I'll have to ask around who can help.

I think their asking price of $189k is quite high based on the shape the house is in and it's only 500 sq.ft. Currently has 1 bedroom and bath. I was thinking of perhaps offering at $150k? There was a house similar size 2 years ago opposite from our house which was sold for $157k and it was in a bit better shape. He has since fixed it up quite nicely. We only have about $15k cash available right now, and in order to buy an investment property you need 20% is that correct? Which is $30k and that's something we don't have on hand.

ADU will be about 700 sqft 1 bed / bath - about $1,000 - $1,200 a month. The house can add new bedroom maybe bath? So 2 bed / 1.5(or 2) bath? - $1,200 - $1,500 monthly?

Here's my math if I did it correctly. I'm guessing the garage ADU will be about $100-130k to build it, then the house maybe $80kish including adding a new garage at the house. How hard would it be to get a construction loan and or hard money lender for both the ADU and house.

The total loans of about $350,000 without down payment. In the end after both are completed with the build, it will be roughly $800 cash flow after expenses paid for that is if I did my math right.

Any hard money lender we should look into in the Central Oregon area that would be willing to help first time investor? 

[Nicolas Yopp]

@Justin Lester - Thanks. I think at this point, I'll wait it out and see what happens.  I feel like I'm rushing into this without being quite ready. I'll keep you in mind the the next opportunity comes up.

@Grant Schroeder - That's good to know that you can go lower down payment. I think it would be nice not to have a PMI to start with. I think I'll wait till I build some more cash first before proceeding. I'll reach out to you when I'm ready for a purchase.

@Brandi Croom - Hi Brandy, nice to see that you're a local.  I of course don't have any track records with investing since this would've been my first investment.  I have been a designer for the last 13 years plus high end custom home new build / remodel construction for the last 20 years.  Not sure if having that experience would make a difference with your hard money lender? I'm sure they're hoping someone bites with their high price. I could always try asking if the owners next door is willing to do seller's financing, but I think I'll wait it out and see what happens next few months.  If it hasn't been sold yet and they accept seller's financing. 

Since I'm new to hard money lenders, would I be able to get hard money lenders to finance the build and renovations of the house after I purchase the property? Since I would need time to draw up the plans then get engineering then get permits before being able to start the build, don't want to waste interest during those "waiting" periods.

@Steve Milford - I saw my neighbor outside yesterday, so out of curiosity I asked him how much he's currently renting for - $190!!!! What? But, based on the condition of the house and it's also caked with cigarette smoke inside the house I could see that.  So it definitely won't cash flow at first.  I believe you're looking in Bend, Oregon which has higher rent prices. This house is in Redmond, OR.  Improving it slightly won't really work on this house, it's really not in that great of a shape.

The only reason why I was thinking of adding an garage ADU is so I can have a garage next door since I don't have one on my property, just a small shed. So would be nice to have a place to store all my tools etc. with the ability to rent the upstairs for additional income.