All Forum Posts by: Drew Farnese

@Drew Farnese Lessons learned might be don't take a GC's word for rehab costs (my view). Another is understand all the numbers and who works for how. GC's work for themselves not you. I agree with Joel, that $15k is closer to what it SHOULD cost. That's what I just paid to 100% rehab a 3/1.5 with new bathroom, all laminant floors, new AC, paint kitchen cabs with Home Depot's latest Behr Ultra white enamel paint, the best latex paint in the world. Gives spray oil enamel results with latex ease and no smell.

I'd join the local REIA and ask for referals for contractors who do rental rehab. You'll save $10k's or more. This should change your math.

Does having a place to live change the math as well?

Given the extent of the renovations needed......I think it is borderline at 110k. At 125k, I pass.

If you rent out the other side at $1,250.....after 50% rule, you've got $625 monthly. 120k mortgage will be roughly that monthly.

So you'd have no cash flow, even completely disregarding the 50k you plan to spend on renovations.

I know this is rough and dirty, but there you have it.

Take a very hard look at the property. I was thinking it was a 3/2 on both sides but it sounds like it is a top/bottom set up. Did the previous owner add a 2nd story here? It sounds like he was trying to build it out and just never got done?If that's the case, I'd probably walk as well. You're going to spend a ton of time and money undoing whatever nonsense he did. I can just image the guy knocking back beers as he was wiring! Was it legal or is there no permitting process in your area? The thing to remember with the 203k...it's a blessing and a curse....it allows you to buy something that needs work but a lot of sellers don't like the paperwork.

You might want to find an agent who specializes in multi-family props in your area. There are a lot of bargains in this area as many a husband/wife team has started with duplexes or tri-plexes but learned the hard way that they weren't landlord material. I've seen it quite a bit here in Atlanta. I'd prefer a unit that was already builtout for you as a duplex as opposed to a conversion.

You might also consider well built 3/3, 4/3s or bigger in a single family where you could add a couple of roommates and still live for free. I've had this approach since I was in college and it works well. Try to get involved with local real estate investment groups as you might find some off-market inventory that would work for you. A lot of the REI groups will clean a foreclosure up and handle the heavy lifting before selling it off...at which point you could go with the streamlined 203 which is a lot easier to use. You're on the right track!

Sounds like you are also a little emotionally attached to this particular purchase. Its hard not to be when you are buying owner occupied. But id agree and say at least hold off and see if the other deal goes threw. Keep us Informed!!

While every piece of real estate is a simple investment decision for most of us here, yours is a different animal for a couple of reasons. You're buying it to live and you're a property virgin so to speak. It's very smart of you to use the 203k program as most buyers don't even know about it. Unless you are a cash buyer, it's about the only way to buy REO props from the asset managers. Most agents don't even know this and their client's offer end up in the trash without a response.

If the other offer is all cash - you lose anyway! Appraisal and market values really don't mean that much today...not to me and really not to you either. You're getting very cheap money with minimal down on a property where the rent on the other unit will have you living for free. For that reason, I like you making a full price offer. Just make sure you get multiple bids from contractors with some references. Ask your 203k loan consultant for some suggestions as to reputable contractors in your market.

Do you have any history on the property? Why was one side gutted out? Is the one unit rent-ready as-is or what has to be spent there to make it so? If you can go month-to-month on the apartment, it might make sense to rent the other unit and keep the newly rehabbed one for yourself. I'd also suggest using shared housing and renting the 3 rooms separately, include the utils and you are probably looking at a much higher net rent. That's the model that I use almost exclusively. Just make sure you have adequate parking and a good lease. You'll be on the scene so that makes it easier. Happy Investing!

Pass....... there will always be other opportunities. Time is on your side.

Sounds like you aren't going to get a "deal" if you up your offer. Even at your current offer you aren't really getting much of a deal if the rehab doesn't go exactly to plan.

Just a negotiating tip, it's easy to get caught up in everything, get excited and overpay for something. Why do you think auctioneers sound like they do. Before going into any deal or negotiation, you should know your walk away point and your BATNA (best alternative to a negotiated agreement). In other words, if this deal doesn't happen, what's your next best plan of action. In this case, your BATNA is probably to keep looking for a "deal". If you know your position going in, then you won't as easily get caught up in the deal and make a bad move. Let the numbers guide your actions.

All that being said, I agree with @Duncan Taylor , you will probably be okay if you hold for a while. If you have to get out of it in the next year or two, you will probably take a beating. Remember, the goal is to make your money going into the deal. If it was me, I'd pass on this one.

Good luck!

I had this happen once and I told my agent I did not feel comfortable offering any more. The bank went with the other buyer. After that buyer couldn't close, the bank came back to me and I lowered my offer. The bank accepted it and I scored a homerun.

Like the stock market, I never chase a deal. It always comes back to bite you. If you have cost overruns the exceed your estimates, you don't have any cushion. There will be another deal down the road. Also, keep in mind that your real estate agent may have a vested interest in you buying this property so that he can get commissions from both sides of the transaction.

Good Luck!

@Drew Farnese I'll leave the analysis to the more experienced folks, but the one thing that made me raise my eyebrow is the fact that you're in a dual agency agreement and the agent told you the terms of the other offer. Under most circumstances that's a big no-no where I'm from. I'm also not fond of dual agency for this very reason - how can someone have my best interests in mind as the buyer when they're also working for the seller? Just my 2 cents.