All Forum Posts by: Milton Rivera

@Ray Hayward

I would go with the environmental study first.  The primary reason being time, you can get the study done in 30-60 days and get the bulk of the findings by then (asbestos, lead paint, underground storage tanks, etc.).  This will allow a contractor to put together a decent remediation estimate (I would include a reasonable contingency since these rarely go as planned and the moment you tear something down you find something else to deal with).  This will give you a go no go number on the environmental impact.  

If the GC has done or is doing similar projects you can create a quick estimate using cost per SF and this will give you broad all in number.  It will take the A&E about six months to create a 50%-65% design that the GC can use to develop actual pricing.   You may want to explore some incentives offered by cities/counties and even lenders when dealing with this type of project.  I believe Fannie or Freddie have a green development incentive that could lower financing fees.

Good luck

@Ray Hayward

I would start by defining a scope and creating an actual budget for the work to be performed.   Doing a full-blown rehab is one thing, doing a quick cosmetic turnover (replace carpet and paint) is another.   By defining the scope you can both agree on what needs to be done and create a budget, you can plug that number into your calculation and determine what the actual value is.  The average cost varies by trade and the type of work being done.  Two quick examples:

Changing a toilet

Labor = Assume 3 hours at $50/hr = $150

Material (wide range, assume something cost effective) = $150

This looks like a $300 job and a 50-50 split in labor/material 

Painting the interior

Materials = $500

Labor = crew of 4 x 8 hrs x $30/hr =960 (Assume 1,000)

Total cost  = $1,500 (Material 33%, Labor 66%)

In general, I agree with adding incentives in order to complete the work.  On projects, where the GC is supplying the material/labor and carrying the cost the incentive is to get the work done ASAP in order to sell and recoup the investment.   There are other things to be taken into account when determining an equitable split, including:

• Who found the deal?
• Who is financing/putting the down payment & closing costs?
• What is the extent of the renovation (how risky is it)?
• What is the total estimated turnaround (from acquisition to selling), how long does will funds be tied up?
• Who is on point to market and sell it?

@Jay Ipswich

It depends what your overall goals are.  Based on some the information provided, it sounds like you are concern about the size of your current mortgage.  It does sound there is a bit of over-leverage at 60% of income (banks typically are looking for low 30s).  

If you contemplating this particular strategy, one way to possibly do it is to stagger your sells by first selling your "losing" stocks/bonds.  Those will not pay any taxes, next, sell the ones that you have held for over a year to pay capital gains in lieu of income taxes.   If the goal is to reduce your mortgage payment, you may need to do a combination of selling stocks to pay down the principal and then re-finance once that capital has been infused.  

Another idea is to focus on paying the lower debt first (in this case the investment property).  This will increase your overall monthly cash flow and also provide a constant revenue stream.   

In general, this would be called a 5 bed 3 bath home. If you are looking to make this officially separate it or make it a multi-family, I recommend engaging an architect in your area as well as the building department as you will need to meet certain criteria (independent entrance, another mailbox, etc.) 

@Wade Penner

If the law allows it in your state/county, then the answer is yes.  In general, think of it in terms of the fact that this person is your tenant, whether the move in would be in three (3) weeks or one (1) day the process should be the same.   

@Wade Penner

Addressing your questions:

3 - I suggest providing a copy of the lease/rental agreement and provide a deadline.  The lease along with the security deposit is due within 48-72 hours.  If there are other qualified applicants it should be first come first serve approach.   

4- Depends on the location and what the law requires.  If there is no specific requirement, I would get the lease sign and streamline the process. 

5 - Typically you do the move-in inspection with them and then hand them the keys.  If for some reason you cannot coordinate a time you can do the inspection, send them a copy (give them 24 hours to provide any feedback) and leave the keys in a lockbox.   

@Jordon Nichols

Pre-qualification is not as solid as the Pre-Authorization.  Pre-qualification is more of an honor system where you tell them some basic info and they can tell you what you may qualify for.  Pre-authorization requires more documentation including a credit pull, income (W-2), etc.  Lenders will typically honor pre-authorizations between 60 to 90 days.  Obviously, do not make any major purchases or something else that would affect your creditworthiness leading to and during that timeframe.   

This is also where relationships help if you have a lender that you have been working with and he understands your overall financial position, he can be a bit more flexible; as @Jeff Dulla mentioned, I would wait until you are closer to actually making offers to get a pre-authorization.  

@Anthony Bright

The issues can be negotiated.  In general, you can choose to address all of the major/critical items that involve safety and/or potential code violations.   Minor/petty issues are that (think a broken light bulb).  Fixing some or all of the issues boil down to a cost vs. time.  Do you the time and funds to address the big issues or do you rather provide a seller credit and have the buyer take care of them after closing.  

@Jackie Paugam

In general, the BP community is not very keen on these type of seminar/programs.

For $38k you can purchase one or multiple properties totaling about $190k (20% down payment).  You can read a few books, watch a few podcasts and start investing.  

@Mary Jay

This will depend on your overall strategy.   If you are planning on quitting your job in the next few years, it sounds like you may need some of the cash flow to replace the current income.  

Option #1 will most likely meet that criteria, you can price for any major repairs/cap x improvements and negotiate those during the acquisition, this will help you hedge against major items breaking down once you acquired.   

Option #2 sounds like a long-term play where you may be betting on appreciation in those markets.  If you were to actually acquire a cash flow negative property, where will the money to fund that shortfall come from after you quit the W-2 job?  From a lender perspective, you may become a riskier borrower, at that point, you would not have a steady income and you would not have shown that the other investments are panning out.  They will be looking at your debt to income ratio and debt service vs rent income on the other "investments".

Good luck