All Forum Posts by: Jonathan Williams

@Luis Nunez First off, it should be obvious that if your HELOC is your partial source of a down payment, then the lender will have to account for that in your debt-to-income ratio. By drawing from your HELOC, you have given yourself a new liability. So the bank essentially has to "re-approve you" if I would guess.

But your lender saying you "can't borrow money" even from yourself, now that sounds a bit crazy as long as the banks parameters are satisfied. What type of loan are you pursuing? Just a plain-vanilla conventional fixed?

@Stephen Gantz How familiar are you with the neighborhood? Familiar enough to gauge an accurate vacancy rate? Neighborhood demographic: will you be renting to students around a university (generally higher rents but more turnover), young professionals, or families?

Also the rent rolls/pro forma will help clarify, but you didn't mention anything on metering. Electricity/gas. Who pays and how much?

Is AC central or window units?

"Complete remodel" - are you comfortable with this? We have a 4-plex under full rehab right now, and only select neighborhoods can support this. You gotta have a good feeling for ARV's, which of course is where your financials begin....purchase price vs. ARV and how much room do I have to rehab and capture some equity? If not enough equity capture, then don't bother. Did you have a contractor verify your rehab estimate? Our 4-plex has knob & tube wiring, of which we are replacing. We also have galvanized piping that didn't supply reasonable water pressure because of internal corrosion build-up, so we're replacing that too. Just for consideration.

@Mark M.

First off, I've never been to the Fort Bend auction, so I can't compare the two. However, first ask yourself what your intent is for going in the first place is. If just to observe the frenzy (i.e. circus) then either should provide you the entertainment. BUT if you're going as a future buyer, then you need to go to the auction in your "farm area". Maybe you don't have that quite defined yet, and that's ok. But generally go to the one you think you'll buy at in the future. These are good networking opportunities.

Keep in mind, there is also the Bank Foreclosure auction at Harris County in another part of the event center. Might be at Fort Bend too, I'm just not sure their format. But banks are required to hold their auctions on the first Tuesday as well, so I presume so. The bank foreclosure auction is much closer to a cattle auction (my upbringing is showing itself here)...fast pasted, a true auction-style. Sheriff sale is slower paced, but often very difficult to hear or know what property is being auctioned. The digital output on the screens helps.

I've bought one bank foreclosure and one tax sale in the past year. Both were purchased at a price that I can (or already have) made money at, but the competition at Harris Co. is really stiff - I've heard more so than Fort Bend but I'll let someone w/ experience in both confirm. There have been properties I've been interested in that people pay near fair market value for a house they haven't seen the inside of. I have a healthy appetite for risk, but I calculate risk into every target I have at the auctions and its my conclusion that I'm more conservative than most investors. Explains why I've only bought 2 properties. But one we rehabbed/flipped for +$80k net, and the other is a fantastic town home site overlooking downtown that I'll either develop myself or flip to a builder for $40k or so net (we've currently got the existing structure rented to be cash flow positive and bide us some time during the redemption period to decide). But I've targeted an average of 3 properties each month for about 10 months now, so you can do the math here.

I've been going to the auctions for only a year, so I don't offer much history. But I'm curious what your intent is, and how the auctions might contribute to your investing strategy? Figure that out first.

@Louis Conrad Any idea how many of the townhomes/condominiums were first listed for sale before leased? It's obvious that with a generally softening market (props to you if you're going strong), developers/investors might be banking on a 2017 oil price improvement (no don't worry, I'm not taking this thread there) to stimulate housing back up to last year's highs so they can sell at prices they originally projected when making their land acquisitions. I'm "bush league" when it comes to townhome development (I having 2 projects, 5 units, in the works) and am pumping the breaks on one, maybe both. Only the past month or so have I seen a softening in lease rates on the new(er) townhomes. Before that they were a sure $2500/mo.

@Sharon Tzib I think you nailed it on marketing w/ house-hackers in mind. Great suggestion.

@Mario Tavares Yes, I keep records of all of these things. Only thing that would require updating if significant time has past since placement might be the credit/criminal background check. But I'm not sure what you mean "FYI, be sure you get the correct amount of rent...A loan will depend on it."

@Jordan Madewell Good suggestion. I've always self-managed and my wife is an RE agent and will sell it, but reaching out to PM companies who have their own interest in the sale by way of add'l business makes perfect sense. I struggled with if this fits the definition of "Turnkey" since I've not placed PM (again, I self-manage). You're right that if they have +2yrs experience as a landlord they can claim 75% of the rental income if they're utilizing a residential loan. So having tenants placed will be a plus there.

We are beginning a rehab of our Duplex + 2 studio apartments on the East side of Houston, Texas around Lockwood & I-45. Given the amount of money we will invest in the rehab and our interest in the rehab piece of REI (among other things) going forward, I expect we will sell the property via 1031 exchange to an investor and do it again. The logistics of rehabbing a multi-family to any great extent are always complex if there are tenants in place. But the stars aligned for us to be able to go in and do the whole thing at once. We'll end up with a "new" property built in 1925 by the end of it.

After the remodel, I expect to be able to improve our revenue considerably. I won't get into the numbers because that's not the intent of my post. I've recognized an appetite for high(er)-end MFH's that have been done well and all systems in & out replaced to reduce/eliminate any near-term Capex going forward. And porcelain wood-look tile (no maintenance?!), open concept kitchen/living, in-unit laundry, yada yada. I think it should be very desirable for both renter and investor looking for this type of property in a part of town with still a huge upside for appreciation. After all, it is "East End Revitalized", but I've never liked the finality of that tag.

My question: Should I place tenants in the property or market it as newly-remodeled? Everything in me says I should place tenants. We've screened tenants before and take that very seriously, so there's not much doubt we can place quality tenants. Secondly, this "proves up" the investment that otherwise me, you, and everyone we know could speculate on what exactly it will generate. Third, it gives me cash flow during the marketing phase since no one knows when it will sell and at what price. Tenants bide me time, and that I like. And I project my investment in the rehab will yield me 12% cash on cash so I'm in a good place no matter the result. Instead of refi'ing out, I'd prefer to sell and do it again.

But maybe there are investors out there (likely locals only) who like to place their own tenants? Secondly, having tenants in place require property showing after an accepted contract and are never perfectly tidy to preserve the showing integrity of the space(s).

Any thoughts?

@Eddie T. do you have an insurance co. you would recommend?

I'm not sure what I paid for the property has anything to do with the insurability of it.

Hi BP community. I just picked up a property at last month's Harris County tax auction (zip code 77007 of Houston, TX). The property has two humble SFH's on it, both tenant occupied. I've met with the tenants and it appears we'll be able to keep them and get them under lease shortly.

Here's the dilemma. We purchased the property for the lot, with plans to develop the lot in the next 12-24 months. Unlike other development deals I'm working, this one currently has $900/mo gross rents coming in while we go through planning/permitting to more than offset taxes/insurance, which along with the fantastic location is why I particularly liked it. Things are tightening here in Houston on condo sales, so I want the flexibility to execute the development if things look good at that shovel-ready point...or not, if they don't.

These two "humble SFH's" are not insurable (at least I don't think). There are no active leaks in the living spaces, but the roof is certainly compromised over a porch and the siding is in terrible shape. The tenants are happy enough with the houses and perform minor repairs themselves as needed. We are currently landlords on other properties and take great pride in maintaining our properties, but for a property that we plan to demo in short time with acceptable tenants MY QUESTION IS:

What do you recommend for insuring such a property? 

I'd like to just get tenants on a month-to-month lease and insure the property for liability. It's cheap, and insuring with a dwelling policy for replacement just doesn't seem to make sense. Plus the insurance co. will almost certainly require me to make some major repairs that aren't justified for reasons I've explained above. So I call our insurance co. and they say they can't extend liability on a home that isn't insured with dwelling? Then I ask about our umbrella with them which covers above/beyond what our primary policy covers, but same story...if we don't have dwelling on it, our umbrella wouldn't cover legal fees, etc. that Landlords lean on umbrellas for.

Any ideas? I can't justify anything expensive, and my primary concern is liability coverage.

Thanks!

First off, is your GC experienced in the type of construction you will be building? If so, has he worn a "developer hat" before, having knowledge of the re-plat/subdivision process (if req'd) that James mentioned? And city permitting, working w/ architecture, soils testing, etc.? Its not that complicated, but will be good to hear he is building within his wheelhouse. Builders are often excellent at managing their crews to get the work done, but not so good at managing to a schedule and run an efficient operation that will cut down on your project duration (and thus holding cost). He also needs a track-record of management success to present to the bank.

We are just starting a development project in Houston, and have talked to Independent Bank and Prosperity Bank here in Houston. Both have construction loan offerings. There is no question that you should finance this jointly with your partners under your partnership entity if you want to go the traditional construction loan route, but whoever is on the note (1 of you, 2, or all 3) need to have strong financials to satisfy the bank requirements. With conventional construction loan comes the required insurance through construction. They also have options to roll over to more conventional financing upon project completion if that should be necessary. You need to structure the financing around the needs of the project, so what are you building?

Of course all lenders will want first lien. If you have 3 lenders, each want collateral to protect their investment, and it doesn't make sense that they all have rights to a third of an asset independently. That's why if you finance separately, it'll likely need to be secured by something other than the asset itself or you go the private money route, then having to deal with separate insurance, etc.