All Forum Posts by: Nathan Patterson

Quote from @Simon Ashbaugh:

You've done a great job making progress on the property. It's impressive to have it almost ready to be rented, especially with the unexpected challenge of repiping the house. Addressing that now while it's empty will definitely save you headaches in the future.

 Thank-you, not much left until completed.  Re-piping was completed today, finishing up the last few items hopefully this week.  

Update: 

We have been able to make some progress on the property, actually almost complete & ready to be rented.  One, expected, but arose sooner then expected, was re-piping the house due to the old galvanized pipes causing low water pressure & continuous leaks that were needing to be repaired.  This will be done tomorrow, a hiccup but good to get it done now while it is partially empty.  

Items completed:
Kitchen has been cleaned, updated cabinet hardware & painted.  

Rooms have been painted, drywall patched & the bathrooms have had the vanities removed.  

Blinds installed, burn hole in decking repaired, HVAC unit repaired; not blowing heat.  Ended up being the blower motor & thermostat.  

To do:

Install vanities, finish painting tub/tile surround, remove/install shower pan & surround, second coat of paint in bathrooms, purchase new refrigerator & re-pipe Units A & B, clean floors/final clean. 

Quote from @Simon Ashbaugh:

Hi Nathan, I say nothing ventured, nothing gained! Sounds like you're handling the challenges head-on with dedication and motivation so don't ever lose that. Once you've started to absorb all these initial lessons, you'll be equipped to make even smarter decisions and secure even better deals moving forward. These early experiences are laying the foundation for your successful and long-lasting real estate journey. All the best!

Thank-you, one thing I have learned is to have the rehab items outlined prior to closing so that there isn't a delay as I was trying to figure that out.  Though in this situation I wasn't planning a renovation until April of 2024.  Next renovation I will have it outlined & ready to pull the trigger when ready.  

Quote from @Shawn Parsh:

Nathan,

I'm not an attorney, so feel free to check with yours, but a equity loan still shows against the property even if the money is  not borrowed at the time. If someone wants to sue you and they have some preliminary work done to determine what assets you might have to go after a property with a priority lien against it will be less attractive. If you have a free and clear property worth 150,000 that would be a more attractive target then a property that already has a lien on it for say 105,000. The lien position is important. 

 That makes sense, I hadn't thought of it that way.  

Quote from @Shawn Parsh:

Nathan,

I agree with Travis and your thought process. I'm currently at the tail end of my latest rehab and I am covering the costs out of pocket. Why take a loan in anticipation of something happening down the road that would require you to have cash when it may never happen. A line of credit may be an option if you can set it up against an investment property not your own home. Plus a line of credit has the added benefit of clouding the title of the property which helps with asset protection. 

I'm not sure what your exit strategy is for the property, but you could always refinance the property or take a new loan on the property if its not financed now after the rehab is done. With less cash in the bank you may have to get more creative to obtain the next investment, but that is a good thing in my mind. Maybe a lease option on a cosmetically distressed property that you can rehab with a much lower budget. Good luck on the project. 

 Can you explain how having a line of credit helps with asset protection?  My plan for this property is to hold it for a minimum 3-5 years if not longer.  

Quote from @Travis Timmons:

Get a line of credit and only break glass in case of emergency. It's there if you get too low on cash, but I'd recommend using your own savings over borrowed funds.

I find that I'm a better investor when I use my cash. It hurts more to spend it, so I get scrappy, do more work on my own, and watch the budget/vendors more. It also mitigates risk because I won't spread myself too thin if I am using my money. 

 You bring up a good point on it hurting more to spend.  I also find that I am more likely to negotiate prices when I can when I am paying for it.  Same with not being too leveraged.  Would you have a limit on how much you would want to be out of pocket?

Quote from @Alecia Loveless:

@Nathan Patterson Congratulations Nathan! The first one is the hardest one! Once you get both units renovated you’ve got a great rent:price ratio.

Soon you’ll be on to the next one. Focus on screening for a good solid tenant or tenants and you should be good for some time to come!

Thank-you!  I definitely have already learned things I never came across in my years of sitting on the side line.  Excited to get this on completed & rented.   

I am in the middle of a renovation and had this thought while talking to another investor.  Lets say you have a $35,000 renovation on a property you purchased.  You have the cash in the bank to be able to cover the renovation.  Now would it be better to 

A) use the cash in the bank so that way you can avoid additional loan fees/interest. 

B) take out a loan to cover the renovation so you can keep the cash you have in the bank and use it for the next properties down payment.  

My thought process is that if you take out a loan(personal, business etc) or HELOC, what ever you prefer, you now have the additional costs of interest & making that loan payment on top of the PITI. But you are able to keep the cash that you have in the bank for any surprise costs or any future properties to purchase. So you would be cutting your immediate cash flow down, or even possibly being out of pocket to make that payment. To keep your account viable

But if you pay cash out of your account, then you will save money in the long run by not having that additional interest/loan payment, especially given how interest rates are around 10-15% from what I've seen.  However, now you are out $35,000 & will need to try & save that up for the next property or for any surprise costs or link up other people to use private capital.  

What is everyone's thoughts?  

Well this was a long time coming, but I finally did it.  In October of 2023 I was able to close on my first property.  I will include numbers below.  What happened after that....an immediate eviction.  Luckily it wasn't too painful, my PM approached the tenant let them know we were starting the eviction process.  A week later, she left under her own will.  Since then it has been a long process of renovations, dealing with lack of communication from contractors and repairs in the unit that is currently rented.  Need less to say the previous owner did not take care of the property & let it fall into disarray.  We are almost done with the reno on the empty unit & I am hoping to get it rented by the beginning of February.  Details on the reno to follow along with photos. 

Purchase price $104,500

Interest: 7.625% with 25% down payment

Property details: 2 units, 1 2 bed 2 bath and 1 2 bed 1 bath.  Built in 1960 in the South East of the USA.  Came with 2 inherited tenants, one is still renting & is current on rent.  

Issues with the property at closing: low water pressure, aging roof, several lights not working, dated interior, water stain under HVAC unit, damaged decking (burn hole & rotting boards), old appliances, holes in drywall

Anticipated cost to renovate:  $22500 (includes roof, repiping from old galvanized pipes, renovation of currently empty unit)  The currently occupied unit is TBD on cost, the tenant has been in place for the past 3 years.   Since it is the smaller unit I am anticipating $6,500. 

Anticipated rent once renovated: $1,650/MO

Anticipated COC: 8.3%

Thanks for reading, excited to post the next update on the renovation with photos!  If anyone has tips or things to watch out for, please provide.  

Obligatory liability statement: So I don't know who you have for insurance or what your policy states so you would need to get specifics from your adjuster/agent.  This is coming from my experience as a previous property adjuster for a Big 5(Geico, Progressive, Allstate, State Farm, Nationwide?) insurance company.  This is my interpretation of the policy I had to enforce & in no means is insurance/claim advice.  I do recommend getting a copy of the policy & reviewing it &/or having the adjuster point out what they are using to deny, if it does go that way. 

To address your question, yes an adjuster can deny a claim due to no heat being on in the property. It falls under that the Insured(you) must take reasonable measure to prevent damage form occurring to the insured property.  So if the pipe did burst in that 2-3 day time span, then there is a good chance it will be denied.  I recommend having a plumber inspect & take photos of the damaged pipe & have them include why they believe the pipe broke/burst.  Now if it did break due to age, then I don't see how it would be denied.  Typically a company won't cover the repair to the pipe but the resulting damage to the property would be covered.  This is just from my experience. 

It could also be denied if the break/burst happened prior to the policy taking effect, if so then you would need to go to the previous insurance company for potential coverage.  What the adjuster said "help me help you" is true.  As an adjuster we always try to find coverage but if the evidence is stacked against us then we will end up denying per what the policy states.  Lastly, they may deny due to long term damage, now this is rarer but I've had claims where the leak was going on for weeks or months(rooms completely full of mold from floor to ceiling).  It was blatantly obvious so that would also be a denial.  Now in your case, if it is a true 2-3 day leak time span then I highly doubt the long term denial would even be considered. 

Hate being the bearer of bad news but yea, this could be a denial due to no heat.  Get the plumbers report & take photos of the damaged diverter to provide to the adjuster.  If you have other questions, feel free to reach out & I can try & help.    Also, something I like to tell people, if you feel that the claim was unjustly denied/investigated you can reach out to your states Department of Insurance (DOI) & they can investigate for any potential wrong doing.