In over my head?

Question

Greetings all,

New to the forum and excited to learn. I am looking at current multi-unit that needs a decent amount of rehab for a live in and rent situation. It's a small city in Western MA and I've been told by one agent that it will be difficult to find a contractor that will start work before spring due to the demand. I'm looking into an FHA rehab loan vs a purchase rehab since I don't have too much disposable cash right now and I'd trying to avoid the complexities of other types of lending at the moment so fresh into this venture.

If I'm looking at 6 months before I can get anyone to fix up the property, should I just abandon this outright? All in all it seems like a good deal and a good fit numbers wise and living wise for me at the moment. Would hate to pass it up, especially if the wait times are going to be like this for a while I might as well start getting in line. I haven't gotten back to the lenders yet but I assume I'll be eating the costs in the meantime. Hoping to get some insight into the experience of others in this kind of situation.

Either way I will likely go see the property with a contractor to get an idea of what rehab costs will be, mainly for educational purposes and run the math with regards to financing. I could likely absorb the costs until the project is complete, but in my head it just seems like months of lost return. I do have to wait out my apartment lease anyways so there's that. I am trying to maintain a good distance from any emotional investment in this. (I am aware that I'm doing a bit of internal justification though haha).

Cheers!

-A

Andrew Postell · Answer

@Alex Fierro it's probably true that you are analyzing something that is over your head but we've all done that!  There's no way to learn/know everything before you execute on a deal.  Knowing everything would be impossible.  I've been doing this for over 20 years...and I still learn things.  It's kind of frustrating - Why can't I just know it all already!

Anyway, the thing I would guide you on here is to ask your contractor.  Let's get your contractor involved on the deal and see what they say.  Maybe they had a project fall through and they are all freed up!  You don't know unless you speak with them.

Now, if you said...."I don't even know a contractor"...then that's where we need to start.

The reason why you might feel "over your head" is because there is information you don't know.  Again, we all go through that...which is why we ask the experts!  Once you have the proper information, then you can make a better, informed decision.

Also, I'm working under the assumption that you have been prequalified for an FHA 203K loan...if you haven't, you should do that also.

Hope all of that makes sense.

Matthew Morrow · Answer

Hello and welcome to the forum!

Waiting for a contractor can be common in busy markets, but it shouldn't necessarily be a deal-breaker, especially if the numbers make sense and you're prepared to absorb some initial costs. Utilizing an FHA rehab loan is a sound approach if you're looking for less complexity and don't have much cash on hand. It's wise to see the property with a contractor to get an accurate estimate of rehab costs. This step will be crucial in your financial planning.

Consider the time to start work as an opportunity to get all your financing and plans in order, rather than lost return. If the property is a good fit numerically and lifestyle-wise, and you're in no rush to move, it might be worth securing the deal and getting in line for the rehab work. Just ensure that the delay won't negatively impact your financing options. Keep a rational perspective and continue to do the math—those numbers will guide your decision.

Good luck!

Alex Fierro · Answer

Thank you for the words of reassurance. As my G'pa used to say "It's a b**** to know it all". I will be looking over the property with a contractor next week to get a preliminary "eyeball" and most likely full quote by what he's charging. Currently finishing the pre-approval for a 203k, shouldn't be an issue as I am blessed being a high earner with a good score in the current economy (although student loans kicking in might be a factor). If I go through with a deal I'll be getting more bids for sure. My agent stated the problem out here is the lack of unskilled labor for the work which really puts a bottleneck on what they can do. I have definitely been kicking the can down the road. A rehab appeals to me more than a turn key right now since the education is what I value more so right now. Sure being a landlord itself will have it's own set of skills to learn, but why not knock out two birds at once. Thanks for the input!

In over my head?

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