All Forum Posts by: Mike S.

I've been in contact with 10 contractors, two of which referred me to a local builders assn.  The main challenge is the time frame and the unknown if the damage extends into the area's that I can't see.

I appreciate all the feedback.  I'll plan on $2500 as a conservative estimate.

@Ron Flatt Thanks for the info.  The trouble I am having is finding a contractor to give an official quote so I have an idea of the cost and can renegotiate.  There were other things found that I think need to be quoted but I should have an easier time finding contractors for.

@Clayton Barnes This is my first property, naturally I am a little more cautious and conservative.  This would be a house hack for me initially.  It's a three unit property fully rented.  The numbers aren't that great outside of a house hacking but there is room for improvement with splitting utilities and getting rents up to market rates.

I have a house under contract and inspection yesterday.  We found some things that were as expected, some unexpected.  The biggest was the discovery of termite damage on the floor joists in the basement.  It appears that there were some had had sister boards installed along with a temporary support.  There are other floor joists that showed damage but did not have sister boards installed.  I was told by the inspector it was not an active colony.  I am told the sellers will make no repairs, but may negotiate on price.  I am hustling to find someone to quote the job.

My Plan

1. Called Terminix.  Got a quote for a treatment.  But they only offer a protection plan if there is not an active.

2. Find Structural Engineer to come out to inspect damage and advise a course of action.

I only have a few days after the inspection period to respond.  Does anyone have any other suggestions besides "walk/Run away".

Is there anyone else I should be contacting to look at the property?

Thanks!

Mike

Hello Dion,

Please PM me with the property information.

Thanks,

Mike

Asking the right questions is always important.  As @Brandon Turner has mentioned many times, there is a way find the right code to unlock bank financing.  I think that can be extrapolated to all the other people and entities we deal with on a daily basis as investors.  Understanding the motivations of who you are talking to  what is important to them; is a critical to unlocking the deals and maintaining working relationships.

The goal of this post is to poll the BPcommunity:

- What is important to each role on the list below.

- Why it is important.

- What are questions to ask to find out this information.

I've given a couple examples below.  Feel free to add to the list or share any advice.

1. RE Agent

- What: Ensure the energy and time they spend with a client is compensated; Why: Realtors don't work for free, Ask: to see their Buyers agent contract and if modifications can be made (specific property types or exclude other projects you are working on)

- What: Client who has a clear set of search criteria; Why: efficient and focused property search; Ask: what search criteria do they need to tailor your search?

2. Contractor

- What: Clear and detailed SOW, Why: Accurate estimating and planning for their business; Ask: for an example of what they consider a good scope of work.

3. Loan Officer/Mortgage Broker

- What: Client with Paperwork in order, Why: minimize delays in mortgage process, Ask: for complete list of documents.

4. Underwriter

5. Appraiser

6. City Inspector

7. CPA

8. Lawyers

9. Property Managers

10. Bank (REO)

11. HOA

12. Neighbors

13. Local Government

14. Seller

15. Lender

16. Wholesaler

17. You

Cheers!

Mike

@Brandon Turner's book "The book on rental property investing" is a very good read.  I read his book about a month ago.  His book gave me the tools I needed to take action, I may be closing on my first property in July.  I've recently ordered J. Scott's books to help understand what kind of statement of work is needed to ensure a property is profitable.

Best of luck to you!

@Viola Enfield Thank you Viola.  I do have that included.

@Anthony Gayden

I appreciate the support!  I've been wanting to do this for quite some time, BP and the books gave me the tools I was lacking to proceed.

I feel the property is in C+ area. The home is equally within a few blocks of C/D as well as A area's. It's about 2 miles from the trendy bar area of downtown York, PA (easy uber/bike ride, may not be desirable to walk through due to C/D areas) but close enough to the interstate for easy access out of town. Rents in the trendy area are within $50-100 but they don't have the off street parking. It's a relatively safe neighborhood without a lot a home sales recently. It's somewhat of a quiet mundane section of town. We have a very large fair and Expo center on the opposite side of the city. When I say city it's 5.3 sq miles.

I don't see much organic appreciation happening, I am not sure there is much that can be forced. Any renovations would have to be targeting extra cash flow and quality tenants (the third unit efficiency, a garage as an add on for automobile storage, efficient use of space).  It has the potential for decent cash flow, but requires further analysis.

It could be that this property is as good as it will get and the renovations and potential disturbance of Lead Paint/Asbestos can't be justified. I won't know until I have a contractor come look at it to get an estimate.  I've looked into the possible remediation by myself to reduce cost.

A full rehab would be ideal, it would enable the construction to happen in a short time frame.  We aren't talking about major reconstruction, it's mostly plumbing, electrical, and rearranging and separation of utilities.  I have no issue with getting my hands dirty to save on demo.

A quick plug in of numbers, says that with the added income of the third unit could support an extra 30-40K for reno,  I have to keep in mind there is a 3 unit just down the street that sold a few years ago at 15K less than what I have a on contract.

I am glad you asked the question about the rehab, because the more I think about it, for the cost of the rehab I could purchase 2-3 more properties like this in the area.

Hello all and thanks for taking the time to read about my ongoing deal.  I started reading BP about a month ago and I am starting to put it's methods into action.  I have the property under contract and inspection is 6/13.  The property passed the 2% & 50% Rule initially with conservative rental comps having to interpolate a little.  Only a couple days on the market.  I've only started looking recently and still have quite a bit to learn about estimating renovation costs.  J. Scott's book will be here Monday.

I am reaching out today for a Sanity/Reality Check so as you read through keep these questions in mind.  Feel free to ask any questions.  I am open to sharing my actual analysis but only through PM.

1. Am I over/Under estimating expenses and headaches, with multiple roof types, age of home, and desired alterations of the property.

2. What am I not considering?

3. Am I targeting the right things first?

4. Is the plan realistic?

5. What about this deal would make you move forward, walk away?

Goals: Ease myself into REI by house hacking, eventually this property would become full rental.

Deal: Under contract with Seller renting back MTM until they get off waiting list for retirement community. Rent includes average utilities for unit. Rent covers (Mortgage, PMI, Taxes, Unit 2 utilities).

House Info: 2 Unit house on 1/4 acre. Easy access to interstate and a short drive/Bike ride to city center.  Plenty of off street parking.  It's green based on trulia's crime map.  Original house built in early 1900's and Assume it was originally brick (foundation and properties on both sides are brick 1 story) wood floor over basement appear original and has remnants of knob and tube.  Possibly rebuilt sometime in the 1950's to make it a 2 story.  Lath & Plaster in attic.  Addition added in early 70's to make it two units (seller info). Wrap around concrete porch with roof.  Asbestos Siding per seller disclosure.

Unit 1 (Top): 3 Bedroom/1 Bath large master bedroom, separate entrance at front and rear of the property 1500 sqft not including attic.  Access to the attic for additional storage.  1 window A/C unit, No W/D.  Two breakers (Bath/Kitchen).

Unit 2 (Bottom): Same as Unit 1, except access to basement where w/d located. dropped ceiling with tile in living room.

Property Condition:

Unit 1: Vacant 1 year.  Needs paint, cosmetics. everything works.  I am ok with living in it as is.

Unit 2: Currently occupied by owner and very well kept, outdated, walls need some work in corners, paint, carpet. everything works.

Attic: Lath & Plaster has major cracking and is missing in some places.

Basement: Owner mentioned it's damp during summer & keeps a dehumidifier running down there.  Front basement wall part is brick and transitions into concrete where the addition is.  There are what appear to be insulated tiles attached to the cement wall.  Electric meters in basement.

Front Porch Concrete is cracked and a large part has settled on the right side of the house.  it is unknown if it affects the foundation, but it certainly is pulling down the roof over the porch and will need to be fixed.  I'll know more after inspection.

Grass and driveway well maintained.

Short Term Plan (Year 1-2): House Hack, Save up money for buffer and capital improvements. Rent out lower unit, and turn attic into Airbnb for extra income.  Add Washer and dryer hookups into 3rd room at the back of the house with intention of dividing it further into a utility closet (central air/water heater if it makes sense financially).  gas & water meter for second unit and possibly separate water heater for second unit.  Attic insulation.

Long term Plan (Year 3-5): Convert to 3 Unit by making the attic an efficiency apt (bath, stand up shower, mini fridge, microwave).  Renovations for Safety, Longevity, and other upgrades attract quality tenants. Safety (Wiring, dedicated circuits, interior asbestos/lead paint removal if found) This requires some major renovation to get electric/plumbing up to 3rd floor.  I am currently searching for contractors to assess feasibility.  These renovations and costs are beyond my current knowledge and will have to be justified by increased cash flow/return.

Analysis 1:  2 unit property with property management contracted out, excluding AirBnB Income.

55% Rule for expenses because it is an older house and assuming lower end for rent. (Includes Property Taxes, 7% vacancy, 10% Property Management, $1.2K Property Insurance Best Est., Owner Paid Water/Sewer/Trash, 8% CapEx, 7% Maint. & Rep)

Cap Rate: 5.6%, CoC: 2.3 , Tot ROI; 15.3, DSCR: 113

Analysis 2 (actual situation): 2 Unit Property, Assuming I "pay rent", manage the property at 3% vs 10%, and include 1 day/ month AirBnb income.

Cap Rate: 6.4%, CoC: 8.2%, Tot ROI; 22%, DSCR: 145%

Concerns:

1. Starting CapEx - I have included about 10K for improvements over the first year (paint, carpet, Gfci outlets, W/D hookups, prep Attic for AirBnB) but I didn't include roof.

2. Roof is old, probably end of life or near to it.  Seller reports no current leaks and has repair documentation for a couple spots in between 2006-20014. I'll know more after inspection.

3. Concrete Porch Settling - I'll know more after inspection

4. The possibility of Asbestos/lead paint inside the house and the increase cost of renovation for the long term plan.

Let me know what you think!

Hi Serge, Just a bank loan at this time.