All Forum Posts by: Owen Dashner

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Unless I am mistaken, it is not law. It is normally a lender requirement however. If you pay cash for an uninhabited property and you do not purchase insurance, that is your choice.

Of course, you would be assuming a huge liability risk if someone was injured/killed on your property...

Leroy,

If you are not able to find any comps within 8 miles, I would be extremely cautious about the property you are considering. I have run into this problem in small towns and it can make it extremely difficult to re-sell to end buyers obtaining conventional financing.

Based on the limited information you provided about the area, I would probably only seriously consider purchasing the property if it had really solid cashflow and you were positive you are going to hold it for awhile.

It's just my 2 cents, but there is probably a good reason that the lady is so willing to unload it, aside from not having money to rehab it. Don't get caught up in what she paid for it, what the assessed value is, etc. etc. The only things that matter are what the property is worth NOW and what you can purchase it for. Obviously consider cashflow (and the risk of getting shot) if it's for buy & hold, and true ARV - repair costs and profit if it's a flip. This will help you determine what the property is truly worth.

Another idea would be to buy a house, live in it for 2 years, then keep it as a rental... That's how I got started. It's the best way to get favorable financing, and it will help you gain knowledge on the joys of maintenance and repairs. After you have lived there for 2 years, you could keep the property as a rental up to 3 additional years and not pay capital gains tax if you decided to sell it.

Keep in mind that if this is your first house, you are likely not going to live there forever. So, like Diane suggested, keep a 5-year window in mind. Buy at a discount and put in some sweat equity.

Best of luck!

Thanks for the input guys. I've been looking at some super cheap houses lately and have been concerned about end buyers being able to obtain financing. Sounds like it's still possible.

Thought I'd chime back in here as well... Profit margin also has nothing to do with what percentage of ARV you are buying the property at. You could buy an absolute wreck with an ARV of $100K for $40K (40% of ARV), but you might have to put $40K into it in order to sell it. Then you would be left with 20% profit margin which would be further eroded by acquisition, holding and selling costs...

I just bought a REO at 50% of ARV, but that doesn't mean my profit margin is 50%. After factoring in buying, holding, rehab and selling costs- my profit margin will be approximately 15-20% of the sale price before taxes. Unless I misunderstood what Erika was asking, she was interested in profit margin concerning flips- not what % of ARV you could buy a house for...

According to Homevestors (who have done over 1000 flips), total profits usually fall in the 10-20% range of the eventual selling price. But again, that's not to say you couldn't do better if you are only flipping a small number of houses a year- it's just the industry average.

I actually just talked to a commercial lender yesterday at a local bank about getting a BLOC.

1. I will need to personally guarantee it (not surprising).

2. I will need to provide: Personal financial statement, 2 years tax returns, articles of organization for LLC (and EIN number), and a credit report (he will pull).

3. As collateral, I can use 80% of FMV of any stocks or CD's, 90% of cash value life insurance, 90% of assessed value of my properties minus loan balances OR 80% of appraised value of my properties minus loan balances.

I thought it was interesting that they will allow discounted collateral off of either the appraised value or assessed value, because there can be a huge disparity between the two (and assessed values are almost never accurate in my area).

This particular lender will also occasionally do commercial loans on residential properties, but they will only do a couple of those normally (which is why I'm going for a BLOC).

I am working on pulling my stuff together for them, so we'll see how this shakes out and how much I can get approved for...

1. I just did some insurance shopping yesterday and will be switching everything over to State Farm to save $300/yr.

2. I recently bought a huge batch of "forever" stamps to hedge against future postal rate increases. It's a small thing, but every little bit helps.

Are there any lenders out there that will underwrite loans for properties under $50K?

I found a fixer at $15K that I am thinking about buying, but I am concerned about exit strategies... ARV on the house is around $50K, but I'm wondering if potential buyers would even be able to get a mortgage for that amount... It would also be a good little long-term rental, but I would need to cash out my private lender and would likely run into snags when attempting a cash out refi (obviously).

My understanding is that lenders typically have thresholds ($50K, 75K, 100K, etc.) that they will not normally go below. This is a starter house, so my end buyer would likely be a first-time home buyer. I'd like to get some thoughts/experiences on this.

Thanks in advance!

I'm not a big fan of Amex either and will never again have an account with them.

I also had a credit card with WAMU for several years with like a $4K limit. I was NEVER even 1 day late, paid it off in full every month, and had zero balance for most of the last year. Then I get a letter from them saying that they closed my account because my total combined credit limit was too high... Huh??

So, of course then my credit score gets dinged because my LTV went up because of them closing my account.

Sonsabitches!