Our Next Rental Property (SFR + ADU) #3

This is what we are planning for the kitchen!

(this is how the kitchen looks right now: sorry, I did not know how to rotate the photo). 

Negotiations and inspections, and financing below. 

Hello all! :) 

We are mid-way the escrow process and everything has been pretty smooth so far! 

We just finished all the inspections last weekend on Sunday. 

We conducted a physical inspection, termite inspection and still have to do a sewer inspection. 

Before we discuss what we found, it is important to discuss how we negotiated to get here when we submitted the offer. 

You want to be pro-active in what you will or expect to find in the inspection process and also who will pay for what and how you will pay for it? 

The contract comes with 3 contingencies : 

1. Loan contingency (21 days unless you negotiate something different) 

2. Appraisal cont. (17 days unless you negotiate something diffident) 

3. Inspection cont. (17 days unless you negotiate something different) 

The higher the number or the more time you have, the better and the more secure you are as a buyer. It is important to note that we are currently in a very hot Seller's Market, and most buyers do not have the luxury of choosing a higher timeline for their closing and contingency dates. 

With that said, we found this home before it went to market, and therefore, we were able to agree with seller to the dates stated on the contract. 

From the beginning, both, the seller and us (buyers) understood that the home needed a lot of renovations. The home has not been upgraded ever since 1940... so, we knew that the home would need : plumbing, electrical panel and wiring, roof, windows, new kitchen, bathroom 

floors, and all cosmetic renovations throughout. This is why we first negotiated a price for the home, and then we increased the price of the home by $50k and agreed that seller would allow $50k to come back to us through escrow for renovations. We also drafted an addendum saying that seller will hold back $25k in escrow in the case that their tenants did not vacate the home when they said they would. 

I have seen a lot of people buy homes and are left to deal with the tenants. It's expensive and timely... We knew that the home could have termites and also agreed that seller would pay for anything that came about with the termite inspection. 

So far we know, after inspections, that termite work will be almost $4k. We found a leak in the plumbing line under the home that needed to be fixed immediately. Everything else that we thought needed to be upgraded, 100% needs to be upgraded. :) 

(we will add some photos of how the home looks right now for context) 

and we will also add a layout of the kitchen and what we plan to do! 

As far as the financing : we are working it out right now with our lender. 

We are doing primary home 5% down payment and our interest rate got locked in at 2.69% 

We own a condo in Azusa and that condo will be a rental property. That loan interest is at 2.75%.

The lender is asking for a lease agreement and is taking 70% of the monthly rental rate and applying it to our income for the pre-approval for the new home. 

We had to pay for an appraiser to look at the comparable rentals in the area and see if the numbers are accurate. 

We own our own business in Real Estate sales and we had to submit a Profit and Loss statement along with bank statements of activity in our accounts the last 3 months to match everything we said to the lender. 

We had to make sure that we were paying ourselves every month this year at a monthly rate that matched what we earned last year and also make sure our business also had deposits that match our approval amounts. This is why it is extremely important for business owners to speak to their lenders and accountants to make sure they are preparing and being proactive when wanting to buy a home or investment. 

If you wait till the time you want to buy the property, it most likely will be too late and you will have to wait another 6 to 12 or more months to qualify. 

Not only do you have to save the money required but you also have to "look" good on paper to the lender! 

* While all this is happening: we are also lining up all the sub-contractors that will help us renovate the home and then add the ADU. 

I am getting pricing for all of this. 

The kitchen above so far : for cabinets and counter tops (material only) is about $5k so far. 

White shaker cabinets and pseudo marble : quartz counter tops. 

Hope that you are getting some insight from this process! Let me know if you have any questions and or would like help with something like this?