All Forum Posts by: Brad Fausett

@Andrew Postell

They are telling me it is part of the fannie/freddy guidelines.  This is what he sent me.

@Andrew Postell

Lastly,   my intentions and thoughts is the home will appriase for $80,000 if not higher.  If I buy for $55,000, $4,000 in updates and $1,000 in closing via cash this brings me to an all in of $60,000 as you said.   If the house appraises for $80,000 or higher my total out of pocket should only be closing cost since $60,000 is 75% of $80,000.   If the house appraises higher I could ultimatley get 100% of the say total $63,500 invested back out.   But the reason I am beating this up is I have never done it.  So i want to make sure I understand all avenues of possible issues.   I am looking to add several more properties this year.  Tying up 60K in one is not part of my plan.    I listed the comps below, worst case if I were to get the median of the comps even though my purchase is nicer I should still come out ahead about 3k. However this seems like alot of trouble for 3K.  I need to appriase at 75K -80k.

Home I am buying:  5 bed, 3 bath 2,444 sqft Duplex Finished attic and basement, large fenced in yard, large deck.

Nearest Homes ( immediate neighboorhood)

Comp1:  4 bed/ 2ba Duplex Sold $79,900

Comp 2:  5 bed / 2 ba duplex Sold $69,900

Comp 3: 4 bed / 2 ba duplex Sold $55,000

Comp 4: 4 bed / 2 ba duplex Sold $61,500

Comp 5: 6 bed / 3 ba duplex Sold $64,200

Average of $65,920 and none are as nice as the unit I am purchasing.

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Adjacent Neighboorhood- less that 1 mile from home

Comp 5:  5 bed / 2 ba duplex Sold $105,000

Comp 6: 4 bed / 2 ba duplex Sold $72,500

Comp 7: 6 bed/ 3 ba duplex Sold $100,000
Comp 8: 6 bed / 2 ba duplex Sold $148,000

@Andrew Postell

Again, thank you for your detailed post.   You mention that 25% is not required.  My lender is telling me 25% is required since these are investment properties.  Is this not true?  

@Andrew Postell @Andrea Hauserman

I want to clarify what my intentions are, Andrew I hope you can verify I am following your math and my strategy does indeed work as I intend.

I have entered into contract on a home that I am buying for $55,000. I plan to repaint the interior and replace some vinyl flooring. I feel confident that the home is currently worth $70,000 and will be worth $80,000 on the low side after I clean it up and address a few of these aforementioned updates. My estimate for these updates are are $4,000.

If I were to purchase this home as a straight up conventional loan with 25% down, I would need to put $13,750 down.

Now lets suppose I purchase this home in cash, I initiate a delayed mortgage and the appraiser agrees that the home is indeed worth $70,000 ( which I have plenty of comps to support) I would be able to mortgage 75% of the $70,000 or $52,500.

By employing my strategy, I just reduced my investment into this home from $13,750 to $2,500. I now have $11,250 to invest into another property that would have otherwise been tied up.

Now with this being said, I am told I can do the lesser of 75% of the appraised value or 100% of my purchase price, closing cost and repairs as long as they do not exceed 75% of the appraised value.

I hope this is clear enough, I feel that I have properly explained to my mortgage advisor my exact intent and have been told that my plan works within the guidelines. I am essentially using the difference between my low buy price and the actual value to compensate for my downpayment.

^ I am definetly not 62, Yet.  However I don't believe we are actually talking about the same program.

@Natalie Schanne - these are all great questions and reminders too.  

While I would say both properties are rent ready, I did plan to do some painting in them prior to putting them on the market.  The cheaper home will also have the vinyl flooring replaced in the kitchen and bathroom.  I have updated my spreadsheet to show these cost.  

I plan to  manage all my properties full time currently but I like your thought process as to wether or not they still work when I add PM to my portfolio.  Long term I plan to add these once I am ready for "retirement".  I have added this and will continue to do so for budgeting.

The more expense unit has one tenant staying and the other unit I feel confident I can rent quickly via listings on Hotpads, Realtor and Gosec8.  However, I did not orginally account for listing fees so this has also been added to the "repairs" column for upfront cost.

Your 4 column questions whether I can perform at the same level of a realtor/ brokerage company in realtion to acquiring, screening and placing tenants.  I would certainly hope, that with my sole dedication to only my properties I can far outperform them.   I will personally kick my own rear if I can not fill each of the 3 aviailable units in a 12 month lease in sub 30 days.  Cleveland is a city of renters, with 15,000 section 8 issued vouchers and only 14,000 currently filled in rental homes (data from CMHA) I personally have focused my portfolio on homes that can cash flow with Sec 8 tenants.   

Each of my deals I have accounted for tenant mowed lawns, I will handle snow removal.  I have also budgeted for $125 water/sewage per tenant.   

 I look to the more experienced investors to show me what I am missing.  And i would like to personally thank you for taking the time to write out such a lenghty yet detailed explanation of items I was overlooking.

Quick question in relation to locks?  Who pays a $100 per lock each time a tenant turns over?????  As a owner of a small tech audio visual company, and former residential tech guy if this is really your current plan we should talk.  For around $200 per lock you can put in digital locks, issue digital keys and never replace a physical lock again.

Sounds like a good time to open a lead paint abatement company to supplement our rental income....lol

If this article is true, you better make sure you have no peeling paint prior to the inspector coming!

"Rental inspectors will look for peeling paint in homes built prior to 1978, when lead paint was banned for residential use. Rather than test paint for lead in those cases, the city will cite the property owner for peeling paint. In order to comply with the city's order to fix the problem, the home owner will have to prove to the city that the paint isn't a hazard by hiring a state-licensed private inspector to "clear" the unit of hazards."

Bob,   I had no idea we were talking full abatement!  This is terryfing news.   I was picturing repairing chiping and flaking paint.   Please keep us posted on city hall meetings or any other info you come across.