Charleston SC - Buy/Hold or BRRRR

[Pearce G.]

First deal.  One unit within a 1-story brick 4-plex.  3 bed/1 bath.  Owner-occupied for 10 years.  She is moving out of town to be near kids.  Neighborhood is about half owners, half renters.  Low income, but exteriors are well-kept and personalized.  List price was 70K.  Agent recommended 55K offer and seller took it.  I tried to negotiate down after inspection, but she wouldn't budge.  Turnaround is mostly cosmetic anyway.  Will need a new stove, fixtures, paint, minor floor repair.  3K and 30 days if no surprises.  Should rent for $900, maybe a little more.  Expected cash flow $200+.

Because I don't have 2-year income history, I'm financing this myself against a brokerage account. The good news is the rate is competitive, there are no points or mortgage insurance, and I can act quickly. The bad news is it ties up cash, lowers my ROI, and is not a sustainable financing strategy. With a couple of deals under my belt, however, I hope I can transition to OPM.

Bought it with the intent to hold for cash flow, but an ARV over 80K would be tempting to either flip or re-fi. Closing scheduled for 6/20/16.

Stay tuned.

[Ayodeji Kuponiyi]

@Pearce G. congrats! I would refi and get another property!

[Troy Gandee]

@Pearce G. that sounds like a pretty good property. Your fortunate not to have to have to do much work after the purchase and get the property below list price. Keep in mind that you would need to take 6% off of your net profits if selling (if listing with a Realtor) and you would need to pay for more closing costs and possibly repairs for the new buyer on the back end. I don't think there is enough equity to flip it any time soon. The two year history is really frustrating. Most new investors have to deal with that problem when they start out. I'm actually still stuck in the 2 year limbo for another year or so. Once your two years are over, you can refinance the property into your entity and then you could likely do it over again. The only real alternative is to try to find OPM to give you private funding for the property but the interest is going to be harsh compare to what you're holding now. The way that rents are increasing over the area, I think you should hold onto that property as long as you can.

[Mike Nicholson]

Congrats.  Agree with @Troy Gandee.  Sounds like a keeper. I too am doing the 2 year tango.  Ilook forward to hearing how it all goes.

[Pearce G.]

Closed yesterday.  No surprises...until I called my property manager afterward.

We have spoken on the phone many times, although we have never met in person.  Still, I feel very comfortable with her as the PM on my first property.  She came highly recommended, and she has already been inside the property.  We were going to meet for the first time immediately after closing to finalize our to-do list and schedule handymen, but something came up for me, so I called her to see if we could re-schedule for the next morning (today, as I write this).  She couldn't re-schedule, because she told me she got a new full-time job starting today.  

Uh-oh.  I was counting on her to organize the painter, electrician, plumber, etc. to get the property turned around quickly.  And I was hoping to learn from watching her.  If I have to find and hire those people myself, it will likely cost me another month and some additional stupid tax.

She explained that she intends to maintain her PM business on the side, but she needed the employment for health insurance.  I told her we would see how it works out, but I reserved the right to get somebody else.  She agreed.

So, instead of meeting her at the property this morning, I met her husband, and I feel a lot better now.  He handles the handyman and subcontracting part of their business anyway, which is my immediate need.  She handles the landlord and tenant relationships.  So, for now, we will stay the course.

As for the property, it should clean up nicely, and I hope to have it rented by mid-July.  Once the rehab is finished and I have a tenant, I will write another post about final cost and cash flow.

[Jay Hinrichs]

husband and wife management teams can be very strong.. with wife handling books and records and hubby doing maintenance  that's a good find.

[Damien Ray]

Nice I think you will make out I am facing one of your issues in reference to financing. I do not have 2 year work history either. You said you was able to get a broker loan. Please tell me more

[Pearce G.]

Hi @Damien Ray,

Not exactly a broker loan.  I hold stock in a brokerage account, and I can borrow against that account instead of having to sell the underlying stock to raise capital.  It's sort of like a line of credit with the stock as collateral.  I do pay interest, but I don't have to pay points or fees or get approval each time I use it.