Hey gang,
BP has been such a tremendous help over the last year and a half that I feel obligated to give back a little and at least summarize my experience. So, as always and in advance, thanks BP.
I couldn't decide whether to post this one under 'Success Stories' or something else, since the numbers down the road being non-owner-occupied are not extraordinary, but it is what it is and I'll just provide everything as accurately as I can.
So after months of searching (driving for dollars, cold calling, sending mailers, and door knocking on a few), I finally made the right phone call and got on the perfectly timed conversation with the owner. He later told me that when I asked if he wanted to sell he was taken a back because he had said to his wife the day before "We should think about selling the Fratney house." Anyways, timing...
He told me he wanted tax assessed value (in this case about 55k below fair market) and we met at the property two days later for a tour. Admittedly, being the first one, I was not nearly as critical as I should've been nor accurate enough in terms of doing my scope of work. To be honest, I didn't have much of an idea of how to price things out, and in terms of investor psychology, I probably wasn't willing to walk away and I also hadn't really slept since the first conversation with him; nerves, I guess.
So I locked up this bad boy for 180k to seller.
Since I've had a real estate license for about a year I brought the contracts and comp'd it out, etc. No other agents and no commissions involved. Since I also knew how to calculate closing costs fairly accurately on an FHA, we wrote the contract up for $188,800 with an $8,800 credit back to me. It was a good plan, and I would've stepped into a good bit of equity on day one, but plans often don't work out.
For this 203k loan you have to do a property assessment with a 203k consultant (I guess they're called). First guy told me, and I quote, "Yeah I'd take this one, if the seller gave me $500." He was some suburban nut job, the type who thinks they're always right and that everyone should be amazed by how knowledgable they are. He certainly didn't have the requisite experience for writing up 100+ year old houses, its a different animal. After some screaming and swearing, and him telling me I had to excavate the exterior and had to rebuild the foundation, I still had to pay this knob $450 for the write up and then part ways.
Consultant number two was much more reasonable, but said the property still did not pass FHA snuff. He required me to replace all the remaining original windows (they truly were falling apart, about 20), replace a piece of lead pipe that went from the meter to the main supply hub inside, and then your general FHA stuff about peeling paint and hand rails. Into that I rolled two new furnaces (they were both 25 yrs old) and a backyard privacy fence since I have two dogs. A few other things too I don't recall at the moment.
FHA process wasn't too bad after jumping though a couple lenders (most have no idea how to do this loan and I'd recommend avoiding them - they basically have to have a team to get it done). We wrote it up for 45 days but it took 60 to close, or 60 and change.
The 203k loan is quite expensive, as it turns out, not only is the interest rate substantially higher than the non-renovation loan (my rate was 4.75%), the closing costs are absurd. Felt like everybody gets $750, just keep spitting it out.
Purchase Price: $188,800
Renovation Scope of Work: $27,300
Loan Amount (Includes renovation with repair escrow, high closing costs, etc.): $218,762
The whole experience was great but bordered the absurd, comical even. I was here working on the place, building railings, doing demo in the basement, etc., about a month before closing, and even helped the seller deliver an eviction notice to the tenant in Unit 3 - the worst unit, and the one I would occupy. When I came on the scene three of the four units each had one dog on the lease - there were 12 dogs in the house! Lol. The upper tenant, being evicted, was running a dog rescue out of the apartment and not paying rent (5 caged pits and some little thing running around), the lower, who had a husky, bought another husky and they in turn had a litter of 3, and then just a lab in the back unit. I'm a dog lover and owner, but I'm still pretty on the fence about allowing tenants to have pets...
The contractor and I had a good understanding and he actually allowed me to do a good bit of the work around here and covered the materials out of my loan (I'm sure others would be willing to do this as well).
He was a professional, albeit expensive contractor, and everything went smoothly. Furnaces took him a day and a half, and the window guy replaced all 20 in a single day. ($$$). The plumber took more time to get here and coordinate.
The evicted tenant was out May 31st, and I took ownership on June 29th. Another tenant was not renewing the lease July 1st and so I cleaned that one up and we moved in there for a minute as I turned my attention to Unit 3.
This one was a mess, and additionally, the tenant in the unit below it told me that water came through every time they showered. (Apologies for picture orientation, can't figure it out).
Perhaps obviously, renovation had started in the kitchen at the time of the photo. I'm not very diligent about taking before and after photos.
Hired out floor refinishing, and did basically everything else. Actually had a good bit of the cosmetic stuff done before closing but left the bathroom for after we'd closed out the loan and done all relevant inspections (didn't want headaches).
All in all bathroom took me about 5 weeks. Only thing hired out was having a friend paint the trim at the end since I was burnt out on the project. Here's a few of that:
Property is mostly stable now. In the process of learning tenant lessons. One of the inherited tenants in the other two bedroom's girlfriend left (I let her off the lease), and he's paying but paying late. Makes me a bit anxious especially since I've burnt through whatever reserves I had coming in here. We're making it work but proper screening and not being too friendly with tenants to be implemented immediately around here.
So, THE NUMBERS (like I said, a little difficult and something short of exact - I'm going to average Airbnb over December & January):
Gross Rents: 2 Bedroom Apt. @ 750, 1 Bed Apt. @ 625, Airbnb @ $1,342, our extra room for $450 = $3,167
Vac @ 5 % = 158.35
Tax = $422,50
Utilities (Gas & Electric Unit 2 & 3 $400, Water, Sewer, & Trash for building $150 - this is mid winter #s) = $550
Maintenance & Capex @ about 15% = $450
Manage = 0
Insurance $95
_________________________________
NOI = $1,491.15
Debt: 217k @ 3.875 for 30 w/ 221 in PMI = $1,241.03
CF? = $250.12, plus I live expense free.
So, pro forma whatever... Obviously if I hired out management and paid someone to handle Airbnb I'd probably be at a loss. The 'plan,' however, is to stay on site, continue to manage, and when my less than ideal tenant is asked to move out June 1st, turn that unit and also put it on Airbnb. I think I can realistically gross 2k per month on each unit for at least June, July, and August. Even now though, I'm at about 80% occupancy for January! What I thought would be the worst month of the year. Cost per night substantially lower, however.
Last detail, since it's important for COCR, I would say I am all in out of pocket, with renovation and down payment included, about 20k. Or basically every dollar I made for the last six months ;)
In any case, I guess that was long winded enough. Sorry it took so long BP, haven't been on here much since I've been a DIYer for the last 5 months.
Concluding, if I were out looking at a house today would I buy one with the same spread? The same numbers? No I wouldn't. But, if I were where I was six months ago would I do it again, absolutely.
If you've read this far thanks for your time. And if you care to comment, since I still can't decide, was it a good deal?
Best,
JTM
