All Forum Posts by: JT Spangler

From my property evaluation spreadsheet, here are the numbers on this place. 

I'm guesstimating rehab on the basement (the plan right now, subject to change, is to get it livable and freshly painted, and rent it quickly, then in a year or two fix it up further), but have cash reserves if I need to come out of pocket further on it. Or wait a few months.

It's also difficult to get rental comps, because the area is so hot. I'm seeing people rent 2/2s for $2k, and also down to $800 (usually only that low if they're duplexes or totally busted places). I think I could comfortably ask $1100, though. And $450 on the 1bd/1br walk out basement is a pretty smoking deal, truthfully, but I downgraded it a bit because, well, basement apartments can be weird. 

Yes, I know my expenses look low. There aren't any owner-carried utilities, and I got my tax info from the county website. I live a half mile away, so I'm gonna self manage at least to start. If I need to go to a PM at some point, I should have enough equity to drop the mortgage insurance (which eats up a lot of my profit at first). I also enjoy fixing things, so I expect my maintenance expenses can be fairly low. Again, we'll see. I'm new to this, so there's much to learn.

But the market has been so strong the past 5 years that even though I'm not betting on appreciation, I expect any mistakes I make here will be somewhat mitigated by it.

I've been looking at investment properties casually for about 4 years, and seriously for about 10 months. Boy, do I wish I'd had my ducks in a row for some of the deals I saw before I knew enough to know what a good deal was. But, regardless, now is the time when I'm financially and emotionally ready to jump in, and now is the time I have. 

Nashville's a crazy hot market, and East Nashville (where I live) is crazy even by Nashville standards. This particular place spoke to me because (1) it's on a half acre fenced in lot (much larger than most lots in this area), and (2) it's permitted with a basement apartment already in place. The basement apartment has no bathroom roughed in, and not much kitchen to speak of, so it'll need a complete remodel. The 2bd/2br home upstairs is in pretty good condition though. Not perfect -- it'll certainly need some new paint, drywall, and bathroom updating before it'll get top rental dollar, but I can do that myself. 

So, the place was listed for 176k, reduced to 160k, and sat there for two months (in a market where pocket listings often come on the MLS already under contract, and most stuff lasts barely a week). I offered 135k and closing split equally between buyer and seller. They countered 153k, and I told them my highest offer was 145k and they cover all closing costs. My realtor just texted me, and they accepted! So the place is under contract.

Next step(s) is to set up inspection on the place, with the anticipation of them having to give me money to repair some inspection issues (they had a previous contract fall through after inspection, so I know stuff will turn up). To get my financing in order, I'll also have to have an appraisal ordered on my existing house, and get my (currently month to month) roommates to sign a lease. I'm not sure how much anyone in interested in the nitty gritty of the financing, but it's below.

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I have two conventionalfinancing options: investor financing, or owner occupant financing. Investor financing requires 20-25% down, has slightly higher rates, but I don't have to occupy the property ever. OOF requires less down (but with PMI), lower rates, and I have to occupy the property for 1 year*.

Since I don't have 20% down for this particular property, I went with OOF. I'm planning on 10% down, which means I'll have PMI until I can refi or build enough equity through payments. In order to qualify for the amount of money I'm being loaned, it's important that my current house NOT be listed as a debt. Since it hasn't had 2 years of rental income history, I can't call it an investment yet. The other option is if I have a signed lease for the person living there AND 30% equity in the house, they don't have to count it as a debt and include that mortgage payment in my debt to income ratio.

Translation: my roommates have to sign a lease, and I have to have a new appraisal done on my house, with the hopes that my improvements and the general appreciation in all of East Nashville (plus my 20% equity from my downpayment) will get me to 30% equity by the time we close. I'm hopeful the appraisal will tell me what I think, which is that my house is worth quite a bit more than I paid, and won't hold up financing on the new place.

**or, at least, I have to say I plan to, according to two different lenders I spoke to.

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So it's under contract, and I'm working on financing, appraisals, and inspection.

I'll post the numbers in the next post.

Definitely not apologies necessary! Just wanted to make sure accurate information is out there. :)

Is the basement space only possible to add another bed/bath to the existing units, or would the layout allow you to add two additional 1/1 units? If so, I might do this just for that expansion. If not, not a chance.

This is nowhere near an accurate statement. A breaker tripping when a circuit is overloaded is precisely how it is designed to work. And overloading is common, especially when girls get to plugging in hair dryers/curling irons and other devices that use electricity to provide heat, as all of those appliances have high current draw. Now, the fact that it keeps tripping after you've unplugged it is definitely an indication that all is not right, but good advice has been given here regarding that, including yours to get it fixed ASAP.

I loved this story from the podcast, and reading it was equally awesome. :)

Welcome! You want to start with the BP Ultimate Beginner's Guide (on the website, not the forum). It's free, and will explain other metrics you can use to evaluate properties.

Also take a look at the Real Estate Deal and Analysis subforum to see how people analyze deals there.

Do your research carefully. Nest is developed by former Apple engineers, so as you'd expect, it's beautiful and chock full of innovative features. It's also pushed out for release FAR before it's ready. There are horror stories all over amazon from people who has their Nest brick due to forced firmware updates (yep, once you install it there's no way to not have it automatically update, so think about how often your iOS updates leave things working strangely for a few months), which can leave you with your heat/AC running full blast until someone physically goes to the property to shut off the breaker. It also doesn't work with all HVAC units, and plays funny with multizone systems.

I LOVE technology, and reaaaallllly wanted one of these a year ago. But when I did the reseach, I just couldn't feel good about being an early adopter.

Congrats!

Two other things to consider: if it were me, I'd be occupying the smallest unit instead of the largest. This puts an extra 400-500 bucks of real money into your bank account. Since you're going to be leveraged up to your eyeballs and running on really thin margins, this is a no brainer to me.

Additionally, until I came up with the funds to build out the loft apartment, I'd rent it as garage/storage space to the tenants. You could offer them access for $50/month, or whatever is fair, and potentially add another $150/month to your cash flow.