All Forum Posts by: Desreal Shorts

Welcome back to my house hack journey. If you are new I encourage you to go back and read the previous post so that you can get a feel for the full process. For those who are returning, you may recall that the last thing you heard was that I hired a contractor to take a look at the house. This is where you discover if your dream home is really all you thought it could be, or a pig with lipstick. 

Now I will point out that having an inspection done is something that will come directly out of your pockets. I will tell you this, it is not cheap, and for this reason I believe it is good for anyone pursuing this career to have a basic knowledge of home structures; what to look for, warning signs and such. This way, on your initial walk through, you can determine if anything that you see is already a deal breaker, saving you on sending out a contractor unnecessarily. If you are curious to know how much an inspection may cost you; in Detroit, Mi, the average seems to be about $350. I would not recommend doing this for every house you look at. 

So, not that I am a pro or anything, but this is my pro tip: Some inspectors have their own way of doing things. Some like to get through the inspection, and then walk you through pointing out problem areas, and some do not mind having you tag along throughout the process. My suggestion is find one that does not mind having you tag along, and if the contractor you pick is not that person, ask him/her to be. I am not against offering them a monetary incentive if necessary, just to allow me to learn from them on the job, but I am happy to say that my contractor was happy to walk me through the entire process for no extra charge. People love to teach...

I was satisfied to learn that there was very little areas of concern on the home. An added vent to the bathroom was necessary, fixing the handles on the shower, a minor leak in the basement, nothing that was a deal breaker. The contractor wrote up his report, I sent it to my realtor, and she went on to work her magic. 

By now you may have noticed that I have not actually spoken to the buyer. From what I have observed in this experience is that there is no need. That is what our realtors are for; they negotiate for us but in the end everything is our decision. Nothing is offered or accepted without the clients say so, and every offer is presented, even if it is not a good one. But your realtor is your gladiator, here to make sure you get the best deal possible. 

The seller agreed to fix everything on the list. We moved forward with the offer. 

Next comes the paperwork. Your lender is going to send you a lot of forms. I can not tell you what to do, but it would behoove you to read every single one of them. And I will not lie to you, it is going to take some time so grab what ever your caffeine of choice is. You may feel like it is excessive to read over every page of the contract you will receive, but the way I think about it is like this: This is the biggest purchase I have ever made in my life. If I have to spend an evening reading through contracts with my google dictionary on the side, then that is what I have to do. Also, if you plan on purchasing homes on a regular basis, you should read through them at least once. And do not be afraid to ask questions. You are not a Pro, yet. 

After all the forms have been signed by all the proper parties, two things are going to happen; Appraisal and Underwriting. Before I continue I want to remind you that I am using an FHA loan. This required me to have an appraisal done on the house to determine its fair market value. The appraisal is based off of similar properties that have recently sold in the area. The lender will not lend to me anything above this amount. This is why it is very important that as a flipper, you understand how to estimate a property's ARV (after repair value). This was not properly done and so I have ran into my first real hiccup.

The property went on the market at $99,500 which seemed like a great deal to me compared to the $150,000 properties I saw on the other side of town; but that is not how property value work. I offered $100,000 to avoid a potential bidding war and we settled at $104,500. Fair enough for me considering they decided to pay all the closing cost. BOOM! I thought I was winning.

The house apprised for $87,000...........This is what happens when you do not run comps before making an offer on a deal. So what does this mean?

This means that the most the lender will offer me for this home is $87,000. If I am to purchase the property at the price originally negotiated I would have to pay an additional $17,500 out of pocket or find an additional way to finance the property for the remaining amount. Is this what they mean by your property being underwater?

Bottom line is that it will not work. So what to do, what to do? The beauty is that at this point I am able to walk away from the property if we can not come to an agreement. This would call into question who the earnest money deposit belongs to, along with  whether or not I am reimbursed the $500 for the appraisal fee. (Oh yes, if I did not mention it before, the appraisal fee is also an out of pocket expense on your hand, but it is also considered part of closing cost, which is why I had the question of reimbursement).  The answers to these questions are to be determined. 

The ideal scenario is that the seller decides that because the appraisal follows the home, and it is highly unlikely that an investor, or anyone else would pay $17,500 more for a home in the same area, that he drops the price down to $87,000 and we all move along with the deal. But after the feedback that I received from my realtor, it seems like dropping the price is going to be a personal struggle for our seller. But that was just on Friday and he has had the weekend to reconsider. Maybe today we make progress, or maybe this is where I learn negotiation. Either way, wish me luck .

Hello and welcome back to my house hack adventure. If you are new I suggest to first read the first post; My House Hack Journey: Detroit Edition. If you are following up, as a reminder we left of with obtaining a pre-approval letter. 

As I have stated before, your agent is going to need to know what you can afford, as will you. After doing my shopping around I managed to obtain 2 pre-approval letters. The first was for a FHA loan for $108,000. Not too bad for Detroit; enough to work with. The second was a VA loan for $150,000; plenty of wiggle room. Both had an interest rate of 3.5% and I was happy with the numbers; So I went shopping.

There were a lot of homes on the market and I did not have time to see them all. But I took this as an opportunity to learn a new skill along the way. I decided to practice analyzing deals for rental properties since I decided this first property would eventually graduate to simply a rental, rather than a live-in rental. I accomplished this with the Bigger Pockets Rental Calculator. It is a great tool that can break down many of the expenses you can expect to incur and can give you a good idea of the profit margin you could possibly receive, or not if the property is a bust. It is a great tool, easy to use and has unlimited uses for Pro members (I swear they’re not paying me to say this). 

After analyzing a substantial number of properties, I picked the ones that would give me the best potential for cash flow. Now, I will pause here to say that I do recognize that some people do invest for appreciation, but I do not believe I am skilled enough to try to assume the market based off of MY experience. Also, I am a young investor and there does seem to be something very appealing about the idea of building reserves for a rainy day, in light of current situations. 

HOUSE HUNTING DAY!!!

Here is the main thing to remember for this day; WEAR COMFORTABLE SHOES! We all like to show out a little, I get it, but you’re going to be walking in and out of homes on some questionable surfaces. Also, BRING A PEN! You’re going to want to take notes. I know you think you have a good memory, but better safe than sorry. You don’t want to get the basement you loved in one house confused with the kitchen you hated in another ( I don’t know if that makes sense). 

At first I will admit that house hunting was exciting but I did not find anything that made me want to bite. But this is where a little secret I picked up came in handy (it’s probably not a secret. You probably already do this). I have notifications sent to me from Redfin tracking available 3/2 Single family homes in a set area. There are a number of sites you can do this with, such as zillow and realtor. 

But there I was up for some reason at 1:00 a.m. I received a notification on my phone and decide to take a look. Sometimes I see those Redfin notifications and I push them aside for later, but this time I decide to open the message. There was this 3/2 bungalow that was just remodeled for 99.5K. Definitely in my budget, on the right side of town, and after putting it into the BP rental calculator it was a win. So I sent my realtor a message and she had us in the home early that afternoon.

I made a little mistake, I started to fall in love with the property. I was told not to do that. But after doing a walk through I decided that it was very well done flip. At this time it has been very hard to get good properties under contract. The bidding wars were getting intense, so we decided to go in with a strong offer (or what I believed to be strong). I offered 100k with 1500 earnest money, with concessions on the closing cost and blah, blah, blah. I did not expect them to respond so soon as this was over a holiday weekend, but money doesn't sleep. To my offer they countered with 104k and they would pay all closing cost, but I could not use a VA loan (This part was a stipulation before I put in the first offer).

Now, I do not know what they have against VA loans but this was a perfect example of why it is important to shop around for your loans. Because I did not rely on the VA loans no money down policy I was able to build reserves. Because of those reserves I was able to qualify the FHA loan which I decided to apply for when I accepted their counter offer.

So I have a house under contract, now what? WElP, I hired a contractor to take a good look-see around the house. Based on my readings, it is always recommended to get an inspection on a home. Typically you go through an inspection period which is dictated in the contract. He sent me an invoice of which I provided to my realtor, which she will use to work her beautiful magic again. 

And now, we wait. I will continue to keep you posted on my house hack journey. Continue working towards your goals and allow us to continue to motivate each other.

Also, if you have any advice or information that can help me or anyone reading this on our journey please share your thoughts with us. 

Absolutely @Ned Carey. Daily action is the way to go. 

@Greg Scott Yes, thank you so much for the advice. I actually spoke to my lender about that today and it was something she was aware of, and you made me look good (high-five). We are able to go into a much deeper conversation and I believe I made a personal connection just because I showed much more interest in what I am doing than any of her other clients. She has been giving me so much information. So thank you for sending me off in the right direction. 

@Ned Carey Thank you! I have been procrastinating for much too long. It is my time to shine!!!! But boy this is not as easy as I make it sound. Haha. 

@Greg Scott Hello!

So please tell me if I am understanding this correctly. You mean to tell me that If I find a duplex or triplex, I can add in the cost for potential income for rent on that property, even if I do not own it yet? I hope that is what you are saying because if it is that is a GAME CHANGER!!!! 

My very first post I told the BiggerPocket’s world that I am buying my first home! I started in January and boy was it a headache; An inattentive Broker coupled with Covid19 and a city wide shutdown can certainly set you back. But I AM BACK BABY and I am ready to GO GO GO!!!!!

So the first thing I did was consult the wonderful folks here at BiggerPockets for some basic education. I was able to figure out my first few steps and decided I would focus on that. 

Step 1: Figure out my goal

For this property, it was pretty simple. I just moved to Detroit and I have become an unwanted guest (though extremely clean and pleasant and willing to pay; I’m basically a landlord’s dream) at one of my Father’s properties. The goal was to move in long enough to purchase a home and get the heck out! 6 months later...here I am! So short term goal: FIND A PLACE TO LIVE!

I decided that I will be doing a House-Hack. I need a place that I can live comfortably while I am in school full-time, that has enough space that I can rent out to others so that they can pay my bills while I live rent free. (A few years ago that statement would have made me cringe, but now I see its a win-win for everyone. They have an affordable place to stay and can likely save money, I’m an awesome roommate with A-1 cooking skills who loves to cook AND BAKE for people, and they do not have to worry about the upkeep on the home since it is my responsibility; Mindset growth!) 

So now I know who I am. I am a new investor looking to do a live-in house-hack. The type of properties I decided to focus on is a single family 3/2, or a duplex.

Now this is where I would have likely went off on a tangent about the different types of loans that I could qualify for or look into. Now, I encourage anyone to do all of those things, but today we will not be taking that deep dive. Today, we are following the steps and staying focused. And what we are focused on is finding a GOOD agent!

I did some calling around, I did some networking, I visited a few office buildings, and I scheduled a few telephone meetings to find a realtor that I felt comfortable with. So what was I looking for?

1) Someone who knew the city well. 

2) Someone who works with investors.

3) Someone who invests themselves. 

Of course other things went into consideration, such as how fast they got back to me. If they followed up when they said they would. I also tried to gage the strength of their network by seeing if they were able to give me leads on things such as lenders and contractors they may have worked positively with in the past. In the end I was able to narrow my choices down and now I get to watch her work her magic, or we soon shall see.

Step 2: Pre-Approval

Now, if you have not done this yet your agent is going to give you some homework. They are going to need to know how much of a house can you afford to buy?

So, I did some calling around, I did some networking, I visited a few office buildings, and I scheduled a few telephone meetings to find a lender that I felt comfortable with. By comfortable I mean, the lender with the best deal and services. 

This can be quite a tedious process if you do not have your finances organized. There are many ways you can start. You can call your own bank and ask to speak with their mortgage lender. You can talk to someone you know who has bought a home and ask for a reference from them. You can even just google it. 

Now there were a few things about this process that concerned me, so I am sure they are concerns for someone else out there. So to start, getting multiple quotes from multiple lenders will not hurt your credit score (I am assuming you have at least an average score. If not there are things you should read before this). You actually have 45 days to comparison shop for mortgages, plenty of time. 

Get a pre-approval letter not a pre-qualification. These are two different things and I will gladly do another discussion post on it, but for now, what you need to know is that a pre-approval letter is your goal. This is what is going to allow you to go shopping. 

When you sit down to talk with the multiple lenders you have found, they are going to ask you a lot of questions. Here’s the silver lining, they’re all going to ask you the same thing. Some can take it a bit deeper, some only scratch the surface, but it all comes down to the same thing; How are your finances? Here is a list of things that you can start to collect that will save you tons of time. I suggest organizing and keeping this in a personal finance file on your computer that you can add to. (If you would like me to do a video tutorial so you can see how I did it, please leave a comment below). 

1) A copy of a valid Driver’s license, Passport, Military ID, Social Security Card; Identification, you get it.

2) Bank statements - (2 months back) for every bank account you have. (Even if you don’t use it, get it and put it in the file)

3) W2s, 1099s (2 years back)

4) Income tax returns (2 years back)

5) Any other statements from any other financial institutions: Retirement accounts, Annuities, TSP, Stocks, Bonds, Cash-Value on a life insurance policy, etc...
 This list is just to get you started and will likely apply to everyone. But situations dictate, which means that some people will have a lot more paperwork than others. I will point out that I am Single, A Military Veteran, Never Married, No kids, with no assets and no debt outside of student loans. I have the simplest finances on earth to keep up with compared to anyone who falls outside of that category. If you have kids, a spouse, a business, have changed your name, filed for bankruptcy, own any assets, etc, that’s probably going to be a little more paperwork. Which is why, if you are a Nube like me,  it is important that you begin organizing the paperwork of your life. A few minutes a week can save you so much more time on the backend, and it gets easier. 

So, This is the current pause point on my Journey. I have reached out to an agent and I have interviewed multiple lenders. I have sent over my paperwork and now I am awaiting the pre-approval letters along with loan options that I have discussed with each of them. It is always nice to have options. 

I will continue to post about my Journey through this process as it continues along. If you have any comments, concerns, or questions, or if I posted any information that may be incorrect, please do not hesitate to let me know as I am still learning and eager to grow. 

Congratulations to you all for beginning the walk on your path to Financial Freedom! WE GOT THIS!!!

Wow @Tim Herman, That actually was a great crash course. I had to read it over a few times but I think I am starting to get it. I have to practice some more though. I am sure this will lead to other discussion post. Thank you for helping me keep the wheels turning and showing me things I did not see before. And I am all signed up for the next webinar by the way. You all are great! 

Thank you @Clint Shelley. And absolutely @Dominic Royles

That is an excellent actionable step! I will be honest, Ive been pretty nervous about learning how to analyze deals so I have not actually taken a look at the rental calculator. But even hard things must be done and eventually it will not be so hard anymore. I am going to make it part of my daily goal to analyze three deals a day. I saw a lot of great resources on here on how to properly analyze a deal and I do believe they have a webinar on it as well. So it looks like I have some homework to do. Thank you @Clint Shelley.