All Forum Posts by: Emilio Attardo

Hey @Wayne Brooks and @Christopher Brainard,

Thanks for the replies. My HML had to check with his underwriters, but we did find out that they cap the seller concessions at the closing costs, regardless of down payment or loan amount.

Hey Johnathan, 

I strongly recommend you look into the FHA 203k Loan. It's an amazing loan product for exactly what you're interested in doing. It's essentially a low money down home renovation loan, but like a regular FHA loan, it can be used on small multi family properties (up to 4 units). Your loan would be the purchase price of the home + the cost of the renovation (less 3.5% or 5% down payment). So, if you're buying the home for 200k and it needs 150k your down payment would be 350k * 3.5% = $12,250 plus closing costs. In some cases if the house is not livable or the renovation would make it unlivable, the first 6 months of payment can be rolled into the loan amount. Some of the closing costs can be rolled into the loan as well.

A couple tips: choose a lender who does FHA loans and has lots of experience with the 203k process. Don't pick a lender who has done an FHA loan or two in their career. The 203k process is long and arduous and requires a team with experience. You'll also need a 203k consultant who will work with your lender, and the contractor to determine scope of work and after repair value to make sure the property qualifies for the loan. There are other guidelines that are in place for 3 and 4 unit homes that make it more complicated, but not impossible. If you're looking at a duplex it's a little more straight forward. For 3 and 4 unit properties, the property must meet something called "The self sustainability guideline" which has to do with the income of the property vs the monthly PITI. Your consultant and lender should be able to give you more info on that. You can find a list of 203k consultants in your area here: https://entp.hud.gov/idapp/htm...

That's the best place to start in my opinion. The consultant will be like your partner (you do pay him I think like 900 bucks but it probably depends on the area/consultant). He will be able to give you lender recommendations and contractor references. You'll also need a HUD certified contractor to GC the project.

You will have to live in the property for at least one year to satisfy the terms of your FHA loan. This is standard for any FHA loan, not just the 203k. You will also have to wait at least one year before you refinance, for the reason stated above. Neither of these are really big drawbacks since you're planning on moving in anyway, and the down payment is so low it's not like you're going to pull out tons of your working capital with a refinance in 6 months.

Good luck and I hope this helps! 

Emilio

Hey BP, 

Scenario: I am Purchasing a home with a hard money loan. We went under contract with the following assumptions:

Purchase: $91,000

Rehab: $64,000

ARV: $215,000

ARV*0.75= $161,250

$161,250 - $64,000 - $91,000 = $6,250 left over to cover closing/holding costs. Not bad for my first BRRRR (or so I thought).

My lender was going to lend $132,250 which comes out to 75% of purchase and 100% of rehab, or ~60% Loan to ARV, and I would bring $22,750 + closing costs to the table.

We budgeted $10k for foundation repairs, but found out during due diligence that this would cost $35k.

We're currently waiting on the seller to sign an addendum to extend the inspection period so we can get a second opinion on the foundation repair. In the meantime, we've reached out to get competitive quotes for the foundation, and I've discussed my options with the lender.

Most likely, we are going to have to renegotiate with the seller. IF we confirm with another foundation repair company that the cost really is 35k to repair the foundation (or 25k higher than expected), the new numbers would look like this:

Purchase: 91k - 25k = $66,000

Rehab: 64k + 25k = $89,000

ARV: $215,000

Based on this, the project, in the lender's view, goes from "light rehab" to "heavy rehab" due to the ratio of purchase price to renovation cost approaching a ratio of 2:3 (or reno$ = 1.5*Purchase price). for a "heavy rehab", he's only able to lend 50% of the ARV, or $107,500. this would require me to bring almost 50k to the closing table. I'm simplifying some of the numbers, because my question is approaching and does not depend on exact figures in this example....

To "work around" this problem, I had the idea of approaching the seller for concessions, as opposed to reducing the purchase price. If the seller provided a concession to cover the increased cost of the foundation repair, the other aspects of the loan could remain the same. 

Purchase: $91,000

Rehab: $89,000

Seller Concession: $25,000

ARV: $215,000

My lender would still be lending $132,250 ($68,250 for the purchase price and $64,000 for the rehab), and we'd use the $25,000 in concessions to cover the balance of the rehab cost. This would be ideal based mostly on the fact that I would have to bring less cash to close. 

SO, my question: Is it possible to receive a 25k seller concession in this scenario? When I looked it up on line, all I could find was limits to concessions based on loan type and down payment. The articles I read discuss that limits to seller concessions are designed to prohibit inflation of the housing market, which makes sense, but it doesn't mention cash or hard money purchases. This would be a concession that's ~30% of the overall purchase price, which far exceeds the limits I read about online. 

Does anyone have any experience with negotiating seller concessions with a cash or hard money purchase? What would be the maximum seller concession in the scenario laid out in this post?

Thanks to everyone who reads and responds!

Best, 

Emilio

Hey BP, 

Just went under contract on a little 2 bed 1 bath in Pensacola, FL. Contractor walked it and recommended a second opinion on a potential foundation issue. Does anyone know of a foundation repair company that could come out and take a look this week or next?

Thanks in advance!

Best,

Emilio 

Thanks, Matt. That's good insight. I have a follow up regarding your comment about occupying the property after closing... would it be reasonable to renovate the property first before moving in? I would obviously process the paperwork and change my address upon closing, but I would expect the rehab to take several months before my side of the property is move-in ready. 

In addition, most of the work in required in one unit. If there was one livable unit and one that needed an extensive renovation, would the lender expect me to move into the livable unit right away even if I planned on using the fixed up unit as my residence? 

Hope that makes sense. I will DM you for lender rec's. 

Best, 

Emilio

 Hey Erik,

Thanks for the reply. I have heard lenders see moving from a SFH to a multi as a red flag, but I'm not sure why that's the case. The home we are in now is in my wife's name, and we do not need the money from the sale to purchase the other property. I would be the only person on the loan.

Good morning BP! 

I am currently looking to buy a small multi family with an FHA 203k loan. My short term goal is to buy a property, fix it up, rent the other units and move into the vacant one for a year. Sounds great, but I am curious about how this would work if I were to target a property out of state.... I am from NJ, lived in Pensacola, FL for 2 years, but moved back to NJ for a different job (and a girl - now my wife so I guess I made the right call). Anyway, we are looking to sell or rent our home in NJ and spend some time in sunny FL while we both have the opportunity to work from home. My Mom lives in Pensacola, and I always loved the area, so that's where we're looking.
Does anyone have any experience with out of state FHA loans and could lend some insight? How would the process of hiring the FHA 203k consultant go? Would I have to be there physically for anything other than the close? Would there be a lot of questions from the lender about moving from NJ to FL? Perhaps they would require a letter from our bosses stating we could in fact work from home and move?

the 203k loan product is such a great way to leverage and get started in Real Estate, so I am really trying to find a way to make this work. 

Thanks for reading and sharing,
Emilio

Hey BP,

I am looking to purchase an Air BnB in the Warrington section of Pensacola. The listing shows 2 SFH on one lot. One needs a lot of work, one is in good enough shape to rent out right away. Is anyone familiar with this part of town? STR's or MTR's do around the base? I know its not exactly a typical vacation spot in this area, but I thought since it was close enough to NAS it might see more action, especially for MTR's.

Thanks in advance for your help!  

@Nicholas L. Hey Nick, thanks for the reply. Here's my answers to your questions in the order you asked them.

-Yes we have full contingencies on financing, appraisal and inspection.

-I assumed 5% management because I am going to be self managing and I have yet to find a property that cash flows with 10% management.

-All utilities including water are separate

-Landscaping and grounds is lumped into the 5% maintenance cost.

-The actual rents are unknown because the property is fully owner occupied and will be delivered vacant at closing.

-The building codes in South Amboy do not allow the attic room to be an official bedroom but many properties in the area list the attic as a "bonus room" which can be used as a bedroom.

-A big reason I am not thrilled about this deal is there is not much value to add.. the place does not need really need work. Any value I could add (addition of a driveway or rear deck for upstairs unit) would likely not raise the value much higher than the cost to complete each project.

I don't expect the "bonus room" in the attic having a significant impact on the value of the home but we are certain it will increase the rent.

Thanks again,

Emilio

Hello BiggerPockets!

I live in Middlesex County NJ with my fiance. We have been staying rent free at her parents for about 6 months since our apartment lease ended. For the past year we have been looking for an investment/first home purchase. We were looking at live in fix and flips and small multis up until about March of this year when we pivoted to focus strictly on house hacking. The idea behind that was since the price of materials have gone up so much, buying a house that needed a 15 or 20k rehab would actually cost us 30 or 40k, and could prohibit us from buying another home next year. Our goal is to buy a house every year for the next 5 years.

Now we have an offer accepted on a duplex in South Amboy NJ. Its the first time we actually played the "offer over asking" game and we ended up winning. I have to say it doesn't really feel like we're winning anything. We are still in Attorney Review and I'm not sure if it's buyers fatigue or if I'm actually realizing the numbers are as bad as they are.

List price: $525,000

Offer: $535,000 full inspection and appraisal contingencies

Down payment: $80,000 (15%)

Taxes: $9,000

Monthly PITI $2,950

The property is a top / bottom duplex with 2bed/1bath in each unit.

Currently fully owner occupied, the potential rents are 1950 in each unit making total monthly income around $3900

So as you can see we are very far off the 1% rule (0.85% is more common for my area but in this case it's 0.73%)

As a house hack, we'd be living for about $1,000/mo. That is semi cheap for what we'd be getting in our area, but we need to come out of pocket almost 100k to have the opportunity. Doesn't feel like a win.

We plan to finish the attic to add a 3rd bedroom in the upstairs unit, spending about $3000. When this is accomplished the 3/1 upstairs will rent for 2200-2300.

SO, after we move out, here are the numbers.

1950 + 2200 = 4150 gross monthly income

4150 - 5% capex - 5% maintenance - 5% vacancy - 5% management = 3320

3320 - 2950 = $370/mo in cash flow

370*12 = $4440

4440/105000 = 4.2% Cash on Cash return.

Now the whole point behind this post is I am worried I am sacrificing finding a better deal, a better use of our money, just to get started investing in real estate and to have a place to live. I feel like I'm throwing up my hands and saying "in this market and in this area that's the best I can do"

We've put so many offers out on homes with better numbers but we've been outbid every time.

Every week when I see new houses that come on the market I think to myself "I can't imagine how anyone's making money buying at those prices" and now I am in the same position.

I've read a few posts about duplexes under appraising and people in similar situations to mine. I'm thankful we are still in AR and I have a day or two to receive feedback from this wonderful community that has taught me so much.

Sorry for the long post and if you're still with me thank you so much for reading.

Much love,

Emilio