All Forum Posts by: Joseph Weisenbloom

I received a counter offer for the below property. This property will be my first investment so I need some guidance. House has been recently renovated and should be rent ready pending on inspection. I plan to do all management but will outsource maintenance depending on severity of damage. I plan to live in one unit and rent the other out.

Location: Sherman, TX

Size:1,912 Sq Ft

Lot size: 7,841 Sq Ft

Units: two houses on one piece of land (one is a 2-1 the other is a 3-1)

Price:$75,000

Year Built: 1948

Metering: Property is separately metered for electric but has one water meter.

Income: Property is currently vacant. My rent estimates come from a combination of MLS listings, rentometer, and common sense

Neighborhood rank: B

Rent both sides out:

3-1: $750

2-1: $500

Total income: $1250/mo

Expenses:

Vacancy: $125/mo (10%)

Management: $125/mo (10%)

Maintenance and Capex: $187(15%)

Taxes: $113/mo ($1362 for 2013)

Insurance: $35/mo (Called a few companies and got an average for around 400/yr)

Water, sewer garbage: $125/mo

Total Expenses: $710/mo

$1250-710= $540 NOI

P+I: $377/mo ($72,375 30 years @ 4.75%)

PMI: $78/mo

Monthly cash flow: $85

Yearly cash flow: $1020

Money invested:

Closing costs: $3500

Realtor Commission: $2250 (3%)

Down Payment: $2625 ($75000 * .035)

Mortgage Insurance: $1312 ($75000 * .0175)

Total Invested $9687

CoC Return: $1020/$9687 = 10.5%

Live in one unit rent the other out:

Income: $750/mo

Monthly payment: $603/mo PITI

Water, sewer, garbage $125/mo

My electric bill: remaining $22 will go towards my electric bill

$750-603-125-22 = Living mostly for free may need to chip in on electric or water bill.

Qualitative Analysis

My goal for selecting this property is to live in one unit and rent the other unit out and live for free. After a few years I would move out and rent the other side to make it a regular rental. The property is not a home run by any means but I think it will be a good opportunity to get my feet wet and it meets my goals.

The location is in Sherman,TX which is a growing city 60 miles north of Dallas. Sherman is right in the path of the suburban sprawl that is happening north of the city and has potential for appreciation. Most importantly this location is convenient to my job and will shorten my commute between Dallas, Oklahoma City and Tulsa. Sherman schools recently came out ranked as within the top 20 SAT scores in the metroplex. The city is ripe with other investment opportunities.

The neighborhood I am looking at is low crime, middle class and is within walking distance to both Austin College and Sherman High School. My target tenant is a working class family. I plan to live in this house for a few years and expand my portfolio with local SFHs.

I think its a winner but I may be wrong what do y'all think?

Nope never heard of it but I would be very interested in using it!

@Joe Delia I would be using a 203k because I don't have the necessary cash but I can see how it would be useful for leverage. I heard the draws are difficult which is what everyone else is saying.

@Justin Przybylski Draws are an approved portion of the loan that is released from the bank to pay the contractor. You do need to put down some money for the loan(3.5% down payment, mortgage insurance premium and closing costs) What we are talking about are any funds that I need to use directly for repairs. To get an estimate for repairs you need to get a contractor to give you a bid and submit the bid to the bank.

Yes for example when do I get the first draw?, Is it before construction starts? If its before construction starts then I will have to pay out of pocket which is no good. How smooth is the process with the 203k inspector approving additional draws? How much will this slow down the rehab? These are the nitty gritty questions I am trying to ask to see if this is a tangible opportunity.

@Justin Przybylski Yea I know I can jump through most of the nessasary hoops but the way the draws are structured could be a deal breaker.

@Account Closed

I appreciate the input. I do plan to live in one unit so it classifies as owner occupied.

Well Im no expert so dont quote me on this but Ive heard a few things that scare me. Ive been told that getting the draws up front is difficult and often times people need to pay out of pocket to get the construction started. Which is rediculous because why would I want a 203k if I already had the cash.

I have also heard that there is a lot of paper work which is somthing im not opposed to but I would rather not overwhelm myself. I am busy trying to learn so many things that it might not be a good idea to add another variable in to the mix.

I currently have an opportunity that will need around 15k in rehab but I do not have the cash. It seems the best way to get this deal done is through a 203k loan.

Question#1 Would you recommend a 203k loan for a newbie?

Question#2 How do the draws typically work? The contractor I am working with wants 50% now and 50% when its done.

Question#3 Do I need any money upfront to get the construction started? I have heard that the draws are slow.

The reason I ask I have heard a lot of bad things about 203k loans and do not want to overwhelm myself on my first deal with lots of red tape.

I would be hesitant to touch this deal and here is why. The expenses of 60% are not overly conservative and it may well be more than that. With the floor layout like the one you have and the level of neighborhood you are dealing with you will be attracting some low level tenants. Not to mention the resale value for a house that has been jerryrigged like that is lower. Expect these rooms to be full with larger families than anticipated which means wear and tear. Not to mention water for all these people will be exorbinant.

With that being said I am not a fan of lower class neighborhoods so I may be biased. This dosent mean this cant be a deal you will just have to get a lower price. Considering a cap rate of 10% I would offer 100k. 11040/.1 = 110000 - 10000.

As far as whether this is a good deal compared to your market you will have to speak with local investors and get their 2 cents. Go to a local REIA or look someone up on this site. Or look up other deals that have been done in your area under the "deal analysis forum" From what you are telling me 11% CoC does not seem like a good deal.

Hope this helps.

Congrats this is exactly what I would like to do when I buy my first property!!