Was your home a rehab?

Question

Just wondering how many members have done this for their own residence.

I'm looking into doing my first deal and it seems like a viable option.  I need a house anyhow, it would help me get my feet wet and there seems to be some good benefits to doing it this way if you are willing to rough it for a while.  In your opinion, what would the good and bad be of this plan?

Nate Parkyn · Answer

Tim - this is a great way to get into the business.  I'm on my third house that my wife and I have purchased, moved into, renovated and then sold for a killer profit.  If you can stay focused on the end result and put up with living in a rehab it's not that bad.

The first thing we do is clean and paint the biggest bedroom and seal that off as our "clean" space.  If you can fit a bed, dresser, couch and coffee table along with a tv in the room it goes along way in keeping you sane.

Also a major plus is buying a home with 2 bathrooms (or at least 1.5).  That way you can use one as you rehab the other.  If you can't get a house that works with 2 bathrooms my advice would be to join the closet gym to you for a few months and use their showers.  You'll be taking enough trips to Lowe's and Home Depot throughout your rehab that you can use their facilities as well.

Also depending on how much stuff (furniture etc...) you already have and how much you like it I would also advice getting a storage unit close by and keeping everything there until the rehab is done.  It's much easier to work in an empty house that working around furniture and trying to keep it all clean.

Good luck!

Jon Klaus · Answer

My recent home purchase was about the land and location.  The house didn't need a rehab, but wasn't big enough for my family.  As soon as I closed on it, I finished out the unfinished basement, adding 2 bedrooms and a living area.  We moved in within a week as the dust was still settling and while still working on electrical.  Yes, we got more equity this way, but more importantly, satisfied the Missus.  For a little while, anyway.

Mike V. · Answer

Tim,
I typically get a construction loan thru my local bank for a rehab.  I am responsible for 20% down of the purchase price and they loan the remaining 80% of purchase price plus 100% of rehab cost as long as the total is less than 80%ARV or less.
When I moved my personal residence as described in my previous post I had to use a bridge loan since I hadn't sold the home I was living in yet.  Once that was sold I used the equity from that house to payoff my rehab expenses. 
When all the work was done I pulled a HELOC to fund future projects.
I would recommend you work with a local bank that can work outside the box of conforming guidlelines. With your credit score and a good down payment you shouldn't have any problem finding someone to work with you.

Tim G. · Answer

How are you guys funding these, with conventional loans or another route?

I'm just curious how rough I can go with a property and still pull of financing.  I can put a solid amount down and have a 793 FICO score.  The other question is can you finance above the purchase price to fund the rehab?

Thanks.

Mike V. · Answer

After a couple years of rehabbing there was no way I could bring myself to buy retail so the home we moved into last year was a complete rehab.  We lived in one of our rentals for a couple months while the majority of the interior space was completed.  Biggest advantage I see is the tax savings - every two years I can sell and have completely tax free profit.  Biggest disadvantage is moving every couple of years if you want to keep maximizing your tax savings.

Mike Sales · Answer

Tim, I'm actually going to do the same thing beginning the new year. I'm going to buy a cheap house for cash, rehab(I have some family members that can do the work for cheaper. Then the next year do the same thing. I hope to build up a nice portfolio of SFH's, eventually I want to get into 4 units etc. This is a buyers market and houses are simply too cheap not to buy, I prefer a buy and hold for long-term cash flow myself.

Tim G. · Answer

Thanks for all the replies everyone.

I am in the process of getting pre approved.  Some of my other concerns are just how rough a house can you get while still financing it?  Obviously I'll be avoiding cracked slab, major roof issues etc.  I've set a goal to attend three REI club meetings a month and go to as many open houses as possible to get more information.  Also working on getting a friend to allow me access to MLS out here.

Harry Hallows · Answer

Hi Tim,

Every night we watch HGTV and come away feeling like we live in a million dollar home...you can apply a large chunk of the savings to upgrades that you wouldn't otherwise do for yourself.

We are staying in this one until values trend upward to maximize the profit...then we'll do it again.

Some banks will do 70% LTV after improvements...almost 100% loan in our case.

Also, we learned alot about construction because the house had been vacant 5 years and had termites...we know all about replacing floor joists and prepping for new flooring.

We had such a great margin that we did not have to concern ourselves with overimproving...so we did the best of everything.

Go for it!

Dick M. · Answer

My house was a $26K foreclosure, its all new inside and out, except for 1 ceiling! I'd never put this much into a flip!! But it is just the way we want it...

Was your home a rehab?

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