All Forum Posts by: Alan K Auman

@Jerry Sexton

I totally agree with you. I should have clarified...you can certainly find very affordable vinyl plank, no question. I chose to go with the higher quality stuff for longevity and peace of mind. Everyone has their own preferences when it comes to quality/cost balance. I'm more of a set it and forget type of guy myself so I usually spring for the longer lasting product. 

Thanks everyone for the kind words. Not many people IRL care to hear about your real estate adventures, trials and tribulations so it's awesome to have a forum like this where people not only listen to what you have to say but are genuinely interested as well. 

@Dave Foster

Just......wow. That is quite a lot to take in. You've probably forgotten more about this subject than I'll ever learn. Impressive.

Thanks John. What I would say to your question is that if you only have the loan out for 6 months as I did then you don't have to worry too much about potential lost returns. I think if you use it to make a good RE investment it will almost always be the better path so long as you get that money back in to your retirement asap. Remember if you lose your job that entire loan is due back within a certain time frame. Sometimes as little as a couple weeks. Still, it can be an excellent tool if used responsibly. 

So I'll try to make this quick. I don't have exact numbers because this deal was from last year but I never got around to putting it on here until now as I've just recently really been diving into the forums. I found an REO last March that was actually the first home of my lifelong best friend. He and his wife had bought the house when they were just 19 first starting out. My friends dad has a lifetime of experience in construction so they put quite a bit of work into the house throughout the duration that my friend lived there. They sold in '09 for 51k so when I saw it pop up on the market last march asking 32k I was instantly interested. I went and looked at it and it was definitely in need of some work but for the most part it seemed not too far gone from where it was when my buddy sold 5yrs prior. I went ahead and put in an offer for 27k and it was accepted. Now here's where I had to get creative. You see, for a house that cheap that needed quite a bit of repairs the bank didn't think it would pass Fannie/Freddies inspection. Well obviously I didn't want to waste money on appraisals or inspections just to have the deal killed later but at the same time I wasn't liquid enough to buy the house with cash. So I ended up taking a loan out of my 401k for 31k to cover purchase and repairs. Essentially I became my own private lender. Now this may not seem like a big deal to some of you but at the time I had never heard of this strategy so it was definitely unnerving for me to pull money out of my 401k when literally EVERYTHING you ever read says not to touch that money EVER. I took the leap though because the numbers made sense and I was convinced I could pull it off. To supplement my income that was getting taken out of my check to pay back the 401k loan ($520 monthly) I would just use the funds I had saved up for the down payment that I no longer needed and everything would hum along just fine with no added stress on my finances from a reduced income.

So I got to work with my 5k budget almost instantly but I admittedly started dragging my feet as the weather got warmer. After a long Indiana winter it's hard to not want to get outside and enjoy the warmer weather vs. being stuck inside working on a house that smells like dog pee. But I pushed on and worked some long nights. Got into the habit of heading over with a sixer of beer every weekend night after my kids went to bed. I would just turn on my radio, crack open a beer and lose myself in the work. Some of the long nights painting all alone until 5am were some of the most peaceful nights I've had in a long while. After awhile I began to look forward to being there because it was almost meditative when you can just start a task and just sort of go on auto pilot. On top of what I've already said another obvious reward was seeing each room transform one by one and knowing you were responsible for the change. My youtube history over those 3 months hardly had one video that didn't start with "how to". Now I have some experience with home renovations but nothing quite on the scale as what needed to be done over there. Long story short I finished up in early July. So yes... I absolutely could have gotten done faster than 3months but I wanted to do as much as possible myself to save money and plus with having kids I didn't want to spend all my free time at the rental. With the way I budgeted things I knew I had plenty of time so I didn't kill myself trying to get it done. I took quite a few apps from interested people but ended up settling on a young nurse who had just got a job at a nearby hospital. Boy did I strike gold with her. I'm still convinced that my better half thought that I picked her because she's really attractive (haha!) but I absolutely picked her on merit. She has been an amazing tenant and I'm so happy that I went with her. My logic was not only did she have an excellent credit history and application but since she was a nurse I thought that if I treated her well she would speak positively about me to her co-workers thus giving me a good chance to land one of them should she decide not to renew her lease. Nurses are great because they make great money and have great job security. So here are the numbers:

26.5k purchase price

4.5k repairs

47.5k= cash out refi appraisal (bank allowed 80%ltv after 6 months)

35k check at closing (after closing costs were taken out) 

27k is what was left on 401k loan to pay off at the time of cashing out

total mortgage is $300/month with taxes and ins included on a 5/5 arm

rent=$650/month

So in a nutshell I walked away from closing with 8k in my pocket and a house that was worth 47k that I had 20% equity in that also generates $350 in positive cash flow every month. 

On to the next one.........

The standard amount for earnest money in my area is $500 or $1000 regardless of the price of the home. 

I use vinyl plank flooring in my rental and it has multiple benefits. Unlike laminate wood or real wood it's not affected by water, unlike ceramic you don't have to worry about cracking or chips or grout getting nasty. The tenants don't have to worry about damaging the flooring either which is added peace of mind for them and most of all it's easy to install, looks great, and feels and sounds good unlike laminate. It's like the stuff was made for rental units. Granted it may not be appropriate in very high end rentals but make no mistake....the stuff is not cheap. It's quality flooring and it's durable as can be but you'll pay for it for sure. Worth it though for the peace of mind it offers me for years to come. 

Thanks so much for the reply @BreAnn Stephenson. I agree wholeheartedly that the potential for injury or even loss of life is much more troubling than loss of property. It's really a shame because apart from this issue the duplex is a wonderful property with tons of potential but the price for aquiring it as it stands makes it prohibitive to sink another 12k into it for rewiring. Thus the need for the seller to bite the bullet and do the work. Thanks again for your input!

Thanks guys. I agree the electrical does need upgraded but it may be a deal killer as I have no interest in paying for it myself. The main reason I am curious about insurance availability on k & t wiring is because it would be a very good motivational tool to get the seller on board with handling the replacement costs if I could tell her that she might as well replace it now or else she is just going to have to hope someone with all cash and no interest in having the property insured comes along and buys it. Given the price point of the property I don't anticipate there will be any cash buyers so obviously that would mean she either upgrades the electrical or holds the property since no one will be able to secure a mortgage without insurance. 

So as the title says I am looking at a great property with long term tenants already in place so the property is truly turnkey and the price is right. However I have a suspicion that the property may still be fully knob and tube but won't know for sure until the inspection is done. I'm fairly certain I won't be able to get it insured if I am correct about the knob and tube but I wanted to get opinions from people more "in the know" than myself. Thanks in advance.