All Forum Posts by: Maxwell Emerson

Looking for some insight and recommendations based off of what worked well for others. Here's the background info:

My wife and I bought a small house, 2 bed 1 bath, in 2018 and rehabbed it while living in it. We moved out in 2021 and started renting it out. We've had great tenants, a good property management company, and few expenses over the past few years. We're considering our options for moving forward.

Numbers:

Purchased for ~ $230,000 (2.5% interest)

Remaining balance ~ $220,000

Appreciated to ~ $400,000

Cash flow is ~ $500 a month after setting aside for all reserves

Options we're considering:

1- Cash out refinance- at current market rates, rough estimate is that we could access close to $100,000 in equity, but our cash flow would go to $0 or possibly negative for a period.

2- Sell now - if we sell before the end of the summer, we could still qualify for living in the property for 2 out of the last 5 years for the additional tax benefits. We could maximize our capital (~$150,000), but lose any future cash flow with the property.

3- look into a 1031 exchange for a multifamily or small apartment complex. I've explored this option the least and don't fully understand the benefits of a 1031 exchange compared to our other options.

4- do nothing, continue to let the property cash flow. I personally don't believe that the property will continue to appreciate or see the rent growth that it has seen over the past few years.

Based off of the surface level information, what options would you go with and why? Are there other options that you would consider that aren't listed?

I have a house that I really want to buy for my first investment property. It's right next door to the house I grew up in. I know the area super well, it's a great neighborhood with great school districts and friendly people. All the houses on the block look great, except for this house and one other house at the end of the block.

The lady who lives there has owned the house for almost 40 years now, and there seems to be a lot of deferred maintenance on this property. It would be the perfect house to fix and flip or BRRRR, whichever works best with the numbers down the road. The house is on a corner lot, it has a lot of old "memorabilia" in the driveway, and the whole property could use a facelift and it would definitely be a bonus for the whole neighborhood.

My question is, how do I motivate this person to sell? I've asked if she wanted to sell the house at any point in the future, and her response was a flat out no. According to county records, this house last sold for $60k in 1981 and just from knowing this area, this house would have a minimum ARV of $275k if I did nothing more than get rid of the memorabilia, clean up the landscaping, and did paint and floors throughout. It has much more potential than that if I put more into it.

Of course, none of this matters if she doesn't want to sell. My current thoughts are to simply engage with this owner every 3-6 months to see if she changes her mind, possibly through mail so I can spell out a few benefits for her selling. Does anybody have any advice on strategies to motivate individuals to sell without being obnoxious or frustrating the individual? I don't want to be disrespectful or rude at any point throughout the process.

Thanks in advance for your time and input!

@Kyle Groseclose thanks for the input! For the tile vs laminate, I was considering doing tile in the kitchen so that we can redo the floors in the rest of the house separately from skiing the kitchen rehab, to make it less of an undertaking all at once. We'll look into continuing the laminate into the kitchen as well.

The kitchen remodel will be huge, the current layout is pretty bad and thanks to my step dad we'll be getting a great deal on cabinets and countertops with a much more efficient layout, and of course a more modern look. We're thinking simple white cabinets up to the ceiling, a subway tile backsplash, and extending a section of countertops for more cooking space.

The bathroom looks recently updated, we've already painted and the only other change we'll do is add in a small pre-made vanity in place of the pedestal sink.

I'd love to update the yard, but this isn't our dream home so I don't want to get sucked in to making it perfect just to have a few dogs destroy it later down the road.

Thanks again for your input!

My wife and I are starting out our real estate investing journey by getting our current house ready to rent. We have a small 2 bedroom, 1 bath house with a nice yard in a great little town. The house hasn't been renovated since 1976, and was built in 1953. Our goal is to do most of the work on our house ourselves and get the house ready to rent by December 2020. Here is all the work we want to do on the house:

Interior:

Flooring - currently has cheap carpet throughout and wood floors in the kitchen. We want to tear out the carpet and wood, and do laminate wood flooring throughout the entire house and tile in the kitchen and in front of the fireplace. (~$2.5k)

Walls - new paint on all walls, ceiling, and trim (~$250)

Fixtures - replace old ceiling fans (3), bathroom light fixture, hallway light, and kitchen lights (2) (~ $350)

Fireplace - current fireplace wall is outdated, update to an accent wall and give the house a unique bit of character (~$500)

Kitchen remodel - update cabinets and countertop, add backsplash and minor floor plan changes (~$9k)

Appliances - add electric water heater and new fridge (~$1500)

Misc - new blinds on windows and minor closet changes to make better use of space (~$500)

Exterior:

Fence - Part of fencing is old and falling down, 162 linear feet needs to be replaced, as well as a gate on one side of the house. Cost unknown

Concrete - currently has a gravel driveway measuring 12 feet wide and 45 feet long. I would like to put down fresh gravel at a minimum and ideally new concrete. Additionally, I'd like to add a small concrete patio about 12' x 12'. Cost unknown

Landscape - while I would like to update the landscape, it doesn't make sense to put a lot of effort into this. I will add seed and fertilizer this spring and have a professional prune trees and bushes to increase the curb appeal. Cost unknown

Paint - my wife does not like the color of the house, and wants to repaint. No issues with the current paint however, so I'm not sure it makes sense to put a lot of effort into this area as well. Cost unknown

Labor: most of the labor will be done by myself and family (my wife's dad is a carpenter). We will hire an electrician for wiring the new fixtures and outlet installation (~$100/hr)

The goal for our renovations is to increase the amount we can rent for (close to $1700/mo after rehab), to stand out as a cleaner and newer house than the renting competition, and to force appreciation in order to get a better heloc for future investment projects.

Please let us know what you think! Are we focussing too much on one area, or is there something that we definitely need to be investing in to increase the value of our property? Is there something that we missed all together? And do you have any recommendations for contractors or electricians in the Tacoma Washington area?

We appreciate all the feedback in advance!

@Mike M.

Ya, most of the houses I've heard of like that have been in the midwest it seems. I just read up on the laws that you were talking about and it seems like the best thing for me to do is to not touch this until it goes up for auction. Even at auction, buying the house unseen at $350k in all cash doesn't work out no matter how the numbers are run. There would be too much risk on this even for a quick flip, as the costs could easily go past what this house is reasonably valued at. It seems the best option for me would be to let this go to auction, hope nobody buys, then try to purchase the home from the bank with 20% down and go about investing in this property in that way.

It seems weird to me that Washington would make laws that basically prohibit buying homes in foreclosure, because it helps the homeowner and the bank. I greatly appreciate the advice and knowledge though, I really didn't realize what I could've been getting myself into with this property!

@Wayne Brooks

Thanks for the input, that really sucks to hear but if that's true then this isn't a deal that'll be worthwhile in the long run, at least not without financing instead of an all cash deal. In your experience, will pre foreclosures sell to somebody with a pre approved loan or will this most likely sell to all cash deal? And if this has to be an all cash deal, then how can anybody make the numbers work because the property needs work and isn't currently on par with the market value?

@Mike M.

From what I understand, if a house sells for less than what is owed, then the bank or lender goes into deficiency and has to choose to pursue the original owner for the difference still owed. I'm not sure what the exact laws are, I'd have to research it more. I need to reach out to an expert and see what needs to be done, but I've heard multiple stories of people buying forclosure properties for $16k that are valued at $50-60k, so it's been done before

I need help analyzing a deal and finding hidden costs that might come up on a potential deal. Here's the background:

-House in pre-foreclosure, $42k past due, $300k remaining on loan, auction on November 22nd, house is in WA state

-3/2 house with 2450 sf

-Good neighborhood, property looks well kept from the outside: lawn is green and mowed, house paint is good, general upkeep and maintenance seems to be taken care of

-Comparable houses in the neighborhood are valued at $430-480k, and comparable rentals are around $2500 a month

-House is still occupied

Here are the numbers that I came up with:

-$200k purchase, all cash from private investor

-$50k rehab as needed: $20k for kitchen, $7500 for laminate floors, $2500 to repaint, and $20k left over for unknown costs, closing costs, or wiggle room in the deal.

-All in price: $250k

-ARV: $400k (conservative)

-Rent price: $2500/mo

-6 month cash out refinance: $400k for 75% LTV, repay investor $300k (20% over 6 months)

-Mortgage after refinancing: ~$1400/mo (30 years at 4%)

Cashflow numbers:

Rent: $2500

Mortgage: $1400 (64%)

PM: $300

Maintenance: $500

Remaining: $300/mo cash flow, with $0 left in the deal by myself and the investor

Worries, Issues, and Concerns:

*Occupant must let myself, my realtor, and contractor/inspector walk through the house prior to purchase

*based on the condition of the house, (kitchen or floors don't need to be redone) then the price point of the sale can be raised up to $250k all in

*Possibilty of not being able to refinance. If that happens then

- option 1: pay investor monthly for $1500/mo for 20 years ($360k return, or 7.2% cash on cash return)

- option 2: list the house for sale and repay investor the original $300k promised

*Possibility of existing liens- work with realtor and escrow company to ensure a clean and clear all cash purchase of the property.

Questions:

- Do these numbers make sense? I feel like I'm being conservative on the rehab, as well as monthly maintenance and fees, to ensure that even in the worst case scenario this all works well in the end.

- What hidden costs have you had when purchasing a foreclosure?

- Do you think a purchase point between $200-250k is reasonable for a property with this ARV?

- Has anybody invested in WA, specifically with foreclosures, that could offer more advice or insight into this deal?

I greatly appreciate everybody's time, advice, and insight! Thanks,

Max

@George Pauley

I agree that buying a house is smarter than renting, but I still don't believe that the property I live in is an asset unless it's also cash flowing, such as a duplex. An asset is only something that makes passive income, and that's why a SFH isn't an asset, at least according to Rich Dad Poor Dad. I still think my house is an investment, and something of value that can be passed along to my kids and family on the future. And I agree with your point that I'll always need a place to live, but I don't think that a necessity doesn't makes it an asset.

@Mike M.

Hi Mike, I'm also in interested in buying a foreclosure in WA to turn into an investment property. I'd love to talk to you more about how to go about turning this into a real deal. I've done some research and I've done the basic number crunching, and I think everything will work out with this deal to be a cash flowing rental, with my investing partner being paid back 120% in 6 months. I'd love to get your insight on this potential deal if you've got the time!

Thanks, Max