All Forum Posts by: Allen Ellis

 Thanks Steve. Would you mind elaborating for me? What kinds of problems would this create?

Thank you Maria! All very good advice

Hi all,

I'm getting ready to purchase my first house and would love a sanity check and any advice you all may have.

Background

• I'm currently living in a rented room costing me $400/mo
• I have some extra cash which I'd like to start getting a return on

My game plan to meet those goals is to purchase a house and rent one of the rooms to help pay the mortgage. I could:

• (a) Find a renovated home, move in and rent out as-is (prices are ~$260-300k)
• (b) Find a home that needs some TLC (prices are ~$150k), renovate as needed ($50-70k)

I'd like to renovate/househack because I have a flexible move out date (any time before next May), I have cash on hand to make repairs, and I don't mind hiring out & supervising the skilled labor.

Specifics

I've found on the MLS a house for ~$140k, around 1200 square feet. I saw it today: it's been well cared for but needs to be updated throughout. The mechanicals (circuit breaker, water heater, etc) seem to have been updated within the last decade or so. Has internal ductwork driving their heat but not the AC. The roof is brand new.

The obvious fixes include: new kitchen, refinish or replace floors, reconfigure second floor slightly to fit laundry beside the bathroom, repair plaster as needed, new lighting fixtures, paint, other cosmetics as needed

The biggest work I could possibly imagine include:

• Moving an exterior wall to make the kitchen larger
• Structural repairs to the staircase
• Add a second bathroom right above the existing bathroom
• Acoustical and/or thermal insulation for comfort

I haven't gotten any bids yet but I would imagine that work could be done for $50-70k. If I could buy it for $135k then I'm in for around $200k, and it should be worth around $230k.

At that point I would plan to rent the upstairs (private bed + bath + small office) for $600+ per month, which would almost completely cover the cost of my 15-year mortgage.

My next steps

• Find a realtor. The listing agent has offered to do it for me and save us all a little money, but I believe on my first purchase it's important that I have my own representation. Recommendations are welcome.
• Find a contractor, get quotes. Is it reasonable for me to invite one or several contractors over before committing to buying? Or is that typically done during the inspection period?

Questions

Why has nobody else purchased this? Most flipping advice I've read says you have to discover deals before they hit the MLS if you want to make money. This one's been on the market about a month.

I asked the listing agent this question, and she said most flippers are looking for returns upwards of $50k per flip, and that the margins on this house don't quite allow for that (I'm projecting a $30k margin). Does that sound right? Are there any red flags I'm missing?

Thanks!

Thanks everyone. I'm impressed by your clarity of thought and ability to infer details I hadn't shared. Apparently my situation isn't very unique ;).

I'm planning to drop the list price by $40-50k today and ask my contractor to do the light cosmetic work as soon as he can. Maybe he can clean up as he goes each day so I don't have to take the home off the market and lose a week of marketing.

Additional details you asked about:

• Price: My agent recommended this price. We also based it on an appraisal I had done 18 months ago of $480k, and the market is supposedly a little higher now. Zillow thinks it's worth $512k.
• Feedback: I haven't spoken directly to any buyer's agents to get their feedback. Are you worried my realtor could be maliciously filtering out feedback?
• Staging: It was rented with furniture when we took pictures, but my tenants moved out in June so it is no longer staged. I planned on staging it after renovating.
• Condition: The living and formal areas are in great shape with hardwood floors and original architectural details. The rest is a mix of upgrades dating from the '80s or '90s. Only a few rooms have carpet which gives off a slight musky odor. We did some cosmetic work including painting 7 years ago. There is also a fully-upgraded 1-bedroom garage apartment on the property built 10 years ago.
• Timeline: Until June I had paying tenants. Since they've left I've visited the property and done a few rounds of back and forth to figure out a renovation layout that would be physically possible, and to get bids from my contractors. But thanks, yes I'm sure with more of all 3 factors (realistic thinking, motivation, attention) I could have come to this conclusion sooner. Thanks.
• Ownership: It is still named in the estate of the deceased, I haven't changed it over yet. However this property is in Florida. But I don't think I would need to worry about a seller's disclosure because I'm honestly not aware of any problems, and I'm no longer planning to open any walls.
• Holding Costs: Until June it had a positive cash flow because of the tenants. Since then they have been $2,600/month. Painful.

Thanks everyone. I'll jump on this today (lowering price, lining up contractor to do cosmetics) and hopefully have good news to share soon. I had already ordered new kitchen cabinets so hopefully I can return those without a big hit.

Thanks everyone. I appreciate all of your (quick!) answers! I see a consensus for dropping the price which I regrettably hadn't given serious thought to. Seems obvious in retrospect.

In addition to a price drop, do you think it would still speed up the process by updating some cosmetics, such as paint, light fixtures, carpet, and maybe the new kitchen? It feels a little neglected and those should take less than a week to fix. Any reason not to?

Answers below:

• Background: My sister and I inherited this home from our Grandmother who used it as a rental property. I'd like to use my share of the proceeds to jump into the real estate market in my area!
• HELOC: I'm not eligible for a home equity loan because the house is on the market (seems to me an odd reason)
• Comps: The neighborhood is generally updated. It's walking distance to downtown so it's popular with young professionals and upper-middle class families. But it's also diverse, you have the gaumet of large/small and high-end/modest, so comps are tricky.
• ARV: My realtor thought $540k would sell it but as I now look through recently sold comps on Zillow I worry that's a little rich. The only $550k+ homes I see are a fair deal nicer than mine. I'll ask him what comps he saw that gave him that confidence. Thanks @Mike Thomas and @K. marie P. for the obvious question, I should have done my own research sooner.
• Other issues: I haven't had an inspection but I'm unaware of major issues. There are some minor quirks, including a messy next door neighbor who owns a loud parrot.

(I'll definitely check out podcast #130, thanks!)

Hi all, I'll try to be brief.

My house has been on the market for 5 months with no offers, even with 2 open houses and extensive marketing. It's large, is a 1920's historic home in a very high-demand area, and feedback has been that we are priced correctly ($500k), but the house is not upgraded enough.

The kitchen & bathrooms are dated, so I've decided that I need to fix those up. My question is: how much should I invest, given my situation?

Plan A: $40,000
This is the bid from my contractor which includes a new kitchen, plus rearranging the master bedroom/bathroom and utility/laundry area to be larger.

Plan B: $20,000
This would just be a new kitchen and upgrading the master bath in-place. Keep the laundry in the kitchen where it is now, and the tiny master bathroom.

Other variables:

• Location: The house is out of state. I could fly in probably once or maybe twice to check in on the work, or maybe a friend or realtor could drop by from time to time.
  
• Financing: I have $10,000 in cash. I can borrow $20,000 from a family member. To get another $10,000 I would have to pursue other private/public sources.

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My realtor thinks I should find a way to do Plan A. He thinks we would get our money back if it's good workmanship.

I am leaning towards agreeing with him because I want it sold as soon as we can. But I don't know if it's wise for me to go into so much debt, particularly because I can't be there to supervise, and I don't know if I can line up the financing (credit score = 661/682/690).

Any insights are appreciated. Thanks!