All Forum Posts by: Marc Estepa

So, my family and I have been searching for a primary residence for the past 8 months in one of the hottest real estate markets in the US.  As you can imagine, its been tough as hell and we've consistently lost on every offer we submit.  As this search has progressed, we have grown more and more aggressive.  On this most recent bid, I nearly waived everything within reason.  

We've paid for numerous pre-inspections, sewer scopes, added a 22AD (Additional Deposit in case of a low appraisal), waived financing, written a letter of introduction about my family, etc.  It's starting to get expensive to simply shop.  Aside from simply submitting an all cash offer and outbidding everyone through pure money - what other strategies have you guys used to buy a home?  I'm nearly at a loss and thinking about moving on when the market slows down.  The problem is, I don't think the market is going to slow down anytime soon.  

Thanks @Chris Davidson.  Sounds like I have a place to stop after work!

Hello BP fam! So, I'm looking at a potential property and trying to figure out creative ways to househack and add value. Anyway, there is a home I just put an offer on that has a pretty significant sized backyard. I am toying with the idea of building a Detached ADU in the area. I'm thinking a 2 bedroom/2 bath type Apartment. The neighborhood has an HOA, so I'm about 80% sure they'll have a problem with it. After reviewing the covenants to their HOA, I see that it needs to be approved with a 2/3 vote and I need to have all plans drawn out to present it to the HOA for approval.

When taking on this project, where do I even begin? What should I estimate as roundabout costs for such a project? The home has city water and power and not in a rural location. How can I draw up plans without spending a ton of money? Before breaking ground, I need to be able to present as much of the detail to the plans as possible.

Thanks in advance!

@Christen G., @Paul Welden, thanks for the response!  Unfortunately, with this crazy market - we lost the bidding war on this one AGAIN.  Ugh.

So I’m going to vent for a bit.  We’ve put in offer after offer for the past few months on multiple properties and just disheartened.  This one in particular went $70K over asking and we were neck and neck with the other buyer as the last remaining offers.  They did a “no limit” 22AD additional deposit and a Pass/Fail inspection.  Kills me.  

The best one was a home that had 30+ offers and escalated over $130+ over asking.  I tapped out well before it got to that point.  Talk about a crazy market here.  

Anyway, I’ll definitely take the advice and start talking with banks for the cash out refinance.  I didn’t know they were hard to come by during this time.  In the end, when we eventually find a house that we want to add value to, I want to be in a quick position to refinance out of it and pay my loans back quickly.  

On another note, I was approved for the FHA 203K loan and was also advised to do the Homestyle loan also. Is that type of loan just as fast to compete with conventional buyers competing for a home, or is it just as smooth? My real estate agent said that the FHA 203K loan takes months to approve and would therefore hold me back from competing in an already competitive market with conventional buyers. I don't know about the Homestyle loan though.

Hey BP fam! I am stalking a home we will be using as our primary residence that will need some updating. My initial plan was to get approved for an FHA 203K loan to fund the rehab costs and everything.

After seeing the state of the hot market here in Tacoma, WA - I learned that the best way to compete with multiple offers is to forego the FHA 203K and to go with the conventional loan.

As a result, I'm now trying to figure out the mechanics of funding the rehab and paying it back. My initial plan was just to work it all through the FHA 203K loan.

Borrowing money seems straightforward enough. I'm primarily looking at the following options: credit card, personal loan, borrowing against my ROTH, TSP, HELOC from rental property, etc.

Sorry in advance if this is a stupid question or not - but how does the refinance work to pay back the loans?

If I use a credit card or whatever to fund the loan with the intent to pay it off right away - how exactly does that work?  

My train of thought is now to do the rehab quickly and do a cash out refinance once it’s complete to pay off the rehab loans.  Is that train of thought right?  Is it that simple?  How does this work with capital gains taxes if I finish the rehab in under two years?  Is there a better way to do this?  

Thanks Scott!  Shot you a DM.  I’ve never estimated costs on something like this before.  On top of that, when I have looked into something like this, it seemed so overwhelming I never even considered doing it.  I would limit myself to what cookie cutter homes were available.  It doesn’t help that I have a bunch of naysayers in my office who simply tell me why I CAN’T do something instead of how I CAN.  Thanks!

@Scott Krone, THANK YOU!  This is exactly what I was looking for!  Where is a good place to start with these soft costs?  If I go directly to a home builder or developer with this, is it a one stop shop or do I need to seek these other people individually - ie. architect, civil engineer, structural engineer, plumbing etc.?  What is the best way to do this?  I’m assuming if I take pictures I can possibly email them out to each of these people Individually.  Aside from that, getting them altogether to come out with me individually or as a group to assess the land?  I wish I had a team established for this kind of thing.  I feel like that would be a significant muscle move to hunt these people down to take a field trip over to assess and gather numbers so I can crunch my numbers and put an offer on this land.  Do you have a suggestion on how to streamline this assessment until I have a team built to do this regularly?

@Morris Vanderhost, thanks for the encouragement!  At work I keep talking about real estate (partially cause I’m trying to buy our primary residence), but also cause I found BP about 7 months ago and talk their ears out about investing daily!  

Anyway, they brought it to me since I nerd out on this stuff and they get lost in the numbers whenever I explain it. It's not a buy and hold or a flip/BRRRR so I had no idea how to really assess it!

I just did it roughly off the top of my head with what seems to make sense, but I don’t know how to properly run numbers.  Anyway, this is how I ran them:

I started analyzing what I think is a reasonable price for that type of home in that subdivision. It’s in a culdesac, in the back with a view and sounds of the creek below it. The owner wanted to build a 3000 sq ft home for his family. I figured this kind of home would sell for at least $650K.

Then I set our desired profit at $275K in order to recoup our initial investment in the purchase of the land ($100k), excavation and land prep costs ($70K), closing costs ($13K), realtor commission ($40K) and our own profit ($52K).

650k (cost of the house) - $275K (desired profit) = $375K. This is the upper limit to what the house can be built for in order to make $275K profit.

If we estimate the cost to build this home is $165 per square foot, and our upper limit is $375K to spend on the construction loan, $375K divided by $165 per sq foot = 2275 sq ft home.

Are you saying that it’s NOT a good deal or it is?  I just don’t know what I don’t know.  If there are other costs I’m missing, please help me find them!!!

Thanks @Melissa Uppelschoten!  I’m going to look for builders and see what they think.  You’re right, I think the slope of the land may truly have something to do with that price.  My realtor thinks so too.  I’ve never even considered doing something like this, but before I move forward I wanted to make sure I was looking at the financials first.  I just have no frame of reference or experience with this!

Hello BP fam!  I posted a similar post in the “Starting out” thread regarding my analysis for building a home on a 1 acre, 2 lot property near Tacoma, Washington.  

Just a bit of background.  I know nothing about new builds and I know nothing about buying land.  A coworker showed me a 1 acre lot that has been subdivided in his subdivision for $95K.  Homes in this subdivision easily sell in the $500K range, with some higher end comps selling at the $650+ range.  

We have another coworker who is currently building a 1500 square foot home for $247K.  This comes out to about $165 per square foot to build from his builder.  We used this data point as the basis on which to estimate the price to build a home on this land.  

The goal is to buy the land, build a new home on it and price it at a level that will recoup the price of the land, the excavation/power/water/sewer costs, account for closing costs, real estate commission and our own profit margins to split.

The land is in a quiet, culdesac with a nice view and near a small creek.  It’s in the back of the subdivision with no homes behind it.  It sits on challenging terrain, basically a cliff with a slope.  I suspect it is priced cheaply because of the challenge to build on that kind of terrain.

I started with what I think is a reasonable price point that I know we could sell this kind of house for in this neighborhood - $650K.  

From there,  I set a desired profit as $275K.  This would recoup our investment on the price of the land ($100K), the price to excavate, prep the land to build with power/water/sewer ($70K), 6% realtor commission on $650K ($40K), 2% closing costs ($13K) and split the remaining $52K profit.

With the price of the home set at $650k minus the desired profit $275k, we are left with a construction loan of $375K.

Using our friend’s estimate for a new build at $163 per square foot and a budget of $375K - we estimate the house to be built with this budget to be approximately 2275 sq ft.  

Anyway, just looking for some confirmation to see if I am in the ballpark or way off.  But honestly just checking to make sure I’m mathematically analyzing in the right direction.  

I’m not a smart man by any means, but what else do I need to account for in terms of costs?  What am I missing or forgetting?  Am I even in the ballpark?