All Forum Posts by: Graham Lemly

Hello,

I'm looking for advice on my offer strategy for a house on the market I want to purchase. My goal is to rehab it first then move in as my primary residence. Long term play would be to either use it as a short term rental or 1031 exchange it after 2+ years.

Here is some key information:

• Property recently hit the market and has 2 cash offers already
• The seller provided a pre-inspection report, which I shared with 2 different lenders, both think it may fail conventional financing due to potential structural and electrical issues (realtor thinks it could pass conventional)
• Seller has 100% equity but is behind on other payments (not sure of the urgency money is needed)
• This is my first attempt at an “investment” property so I’m new to this

I see 3 options

Move forward with an offer using conventional loan pre-qualification

-Not as attractive of an offer to the seller

-Possibility that appraiser calls out structural/electrical issues that need to be fixed before closing, effectively causing financing to fail

- Best terms and fewest loan fees for me

Use a rehab style loan such as ChoiceRenovation

-Even less attractive than a conventional offer to seller, but less risk of failed financing if appraiser calls out issues

-Slightly worse fees and interest rates compared to conventional

-Lenders tell me possibly up to 60-90 days closing in some cases, with red-tape for contractor requirements and draw schedules (sounds like the most hoops to jump through during rehab)

Use a hard money lender

-Most attractive loan option I can give to seller so I can compete

-Much higher fees and interest rate for me

-need to refinance into a conventional at the end of rehab (not familiar with seasoning periods but I think this is a factor as well)

Which option would you do? Would love to hear feedback!

Thanks for the insights,

@Jordan Ray I'm aiming for properties that need light-medium rehab using conventional financing, although wouldn't I only want to go the HELOC route after I've used up all available cash first? I think I have enough cash to comfortably do 2 deals, without tapping into home equity. I don't think I fully understand using HELOC to pay points and holding costs only.

Taz, that was my initial thought as well - even though it would hurt to get rid of a 3.5% interest rate, I could get an equivalently priced home with today's conventional primary residence rates and have about the same monthly payments that I have today, simply because of the HOA fees.

Drew, I completely agree about resisting the temptation of buying more than I need, especially if I want it to make sense to then turn into a LTR after 2+ years. 

I am leaning towards purchasing a primary that would require light-medium rehab, in the $125-175k range, possibly with less than 20% DP. Anything much more than that price without way more value-add than I'm comfortable with on my first deal (I'm also not very handy unfortunately) makes it difficult to turn it into an at least break-even LTR when I move out.

 I think I have a short window of opportunity to buy as a lot of people are still waiting on the sidelines for lower rates, so less competition. I think that I can still make a deal work though, given my situation. Memphis seems to be a balanced market right now, and I would have to turn around and sell my condo anyway. 

I'm not sure how much this matters in terms of staying longer in my condo vs buying a new primary, but I did just a few months ago upgrade my HVAC ($12k) and am doing other value-add to it in the meantime. 

Hey everyone, I’m a new investor ready to get my first deal and wanted other opinions on several different directions I could go with my first purchase.

My Goals: start out with a focus on LTRs with SFHs, self-managing and beginning locally in Memphis. I would like to have at least a couple properties before moving out of state that will at minimum break-even on cash flow as a LTR with property management long-distance.

Other info:

• Looking to move out on Memphis with my wife in the next 2-4 years
• Looking to start a family in the next year or so
• Comfortably have ~50k ready to invest sitting in HYSA, excluding Cash reserves
  • Have an extra ~$70k in stocks
• Most interested in A- to C+ neighborhoods
• I currently own & live in a 2/1.5 Condo locally (3.5% interest rate)
  • Not allowed to rent it out
• HOA fees have risen to where PITI + HOA = $1100/mo.
• Have ~$100k trapped equity, good zip code I could sell quickly

Option A: Purchase another primary home locally I could live in for 2 years (lower interest rate), with intention of eventually converting it to LTR when I move out of state. Idea is I could "trade-up" houses, get some trapped equity out of condo, and eventually keep this in my portfolio long-term, for a similar PITI. Then I could start purchasing regular investment properties.

Option B: Find an investment property first (higher interest rate) that pencils out while continuing to live in my condo, and then find another primary I could “trade-up” for with my condo, where I could eventually use it as LTR

Option C: Just focus on finding investment deals that pencil out at a higher interest rate with existing cash, and when I eventually move out of state, sell Condo. This may potentially require a HELOC or something similar if I don't have enough cash left for deal #2.