All Forum Posts by: Padric Lynch

Any recommendations for contractors in or around this area?

As a referral agent, its difficult to provide my services. There is little incentive for a buyer or seller to have me refer them to a real estate agent. I have only been able to refer myself and family members. Would it be okay/legal/ethical to offer a buyer or seller a piece of the referral commission? This is usually 25% of the real estate agents take home commission. In my opinion, this be a win for all involved. The buyer or seller and I would essentially make a commission on the sale of the property and the real estate agent would have an easy lead fall in their lap. But that's just my rationale. What issues could I run into with this approach?

I am hesitant to call this one my first "deal" for two reasons: (1) I haven't closed on it yet and (2) the circumstance of absolutely needing a residence to live in took precedence over taking my time to find a killer deal with concrete criteria. 

Finding the Deal-

I had a weekend to see 16 properties that I had narrowed down on the MLS to be the best "deals", with all things considered (distance from work, neighborhood, market rents, VA eligibility, etc etc). I knew I would be PCSing from Quantico, VA to Havelock, NC in the next two weeks so time was of the essence. I drove down to NC and looked in New Bern, Havelock, and Morehead City. I came across two REOs that met the 1+% rule with 80-85% ARV for minimal work. I was dead set on getting one of these, but to my misfortune, an investor bought BOTH for cash. My VA financed offers didn't stand a chance. The whole ordeal made me more curious then disappointed. I'd still like to meet him. Regardless, this left me with limited options.

TANGENT: Just to be clear, I realize that VA loans are for owner occupants, and I have every intention of making this my primary residence. With that said, I was also looking at these properties with an investor mindset. Eventually, I knew that this property would become a rental and I would be living in it for the time being.

Back to the story. A couple short sales and retail priced properties were all that I had left on my list. I had seen a 2 bedroom 2 bath town home that was over-priced in my opinion. My agent was adamant about showing it to me, even though it was not on my vetted list of properties (probably because it was a dual agency situation?). The sale price was 83k and the property was move-in ready. I remember looking at the property and being unimpressed, from an investor standpoint. As we left the property I told her that I would probably offer 74k on the property, hoping for a 75-76k compromise, if it came down to it. She told me not to embarrass her and "that kind of offer will make the seller mad at you". I guess a mad seller makes for poor negotiations? I won't go on a rant about my agent, but its needless to say that I probably wont use her again. Great retail agent, but not investment savvy. 

Once all of my other offers fell through on the REOs, I decided to make the offer on the town home. This killed me because I was really looking for a fixer upper, but my hand was forced due to the time restraints. I came in at 74k. Seller counters: 75.5K. Real estate agent is stunned. I counter 74.5K. We agree at 75k. This reinforced a valuable lesson. Listen politely, and continue with whatever you were going to do anyway. 75k wasn't an arbitrary number thrown out there for no apparent reason. It was the price in which I would be cash flowing, give or take, $100 per month if rented. This would also leave room for the financing of closing costs (which I am strongly considering) to improved my COC return and ROI. Overall, I'm pleased with how the purchase has went, but I definitely need to be more diligent in the future as I start to use more of my own capital or private funds. Currently, we are negotiating some minor repairs to the property and ending due diligence. Should close by the end of the month.

The Numbers-

Sale price: 75k

Loan: 80k (closing costs financed)

Rent: 775

Taxes: 74

Mortgage: 388

Insurance: 66

Maintenance/Repairs: 38

Property management (11%): 79

CAPEX: 60 (relatively new big ticket items)

Cash Flow (self managed): 94

I'll have roughly $700 to put towards closing costs and $900 to spend on appliances. That is $1600 down. This comes out to a 208% ROI and a 71% COC. I have every intention to self manage this for the duration of my career so there was a bit of selective over sight on that particular expense. I used a very conservative rent estimate to analyze this property based on the comps and the basic allowance for housing in the area. Also, the fact that I had to buy in an expedient manner sort of helped me justify "fudging" the numbers. Going forward though, this cannot happen. My analysis has to be day and night. Deal or no deal.

Parting Thoughts-

I have to say, the VA loan came in clutch. It doesn't kill your cash flow with PMI and still offers 0% down. I will make back the amount I put down in the first couple months of having a roommate. With regards to to the "deal", please don't hesitate to poke holes into/comment/question this post. I am still learning the ropes, and I view this transaction as my training wheels into off market deals with strict criteria. I'll make sure to write a follow up post with how closing went and my plans going forward.

-Paddy

Hey BP,

Just got off the phone with a loan officer. We had spoken about my plan to use conventional financing in order to capitalize on the owner-occupant benefits, then renting and moving, using a VA loan to purchase another property as an owner occupant. Each property would be in the same area so his concern was that a VA loan would be hard to justify to an underwriter on that subsequent property. Going VA first, then conventional second is definitely a solution to this, but I feel like the reverse would be a smarter way to deploy my capital. Waiting a year to move out or purchasing an "investment property" with a marked up rate and higher down payment would be painful! Has anyone seen an instance where this was not an issue in acquiring a VA loan? Any guidance or insight would be appreciated.

I am beyond excited to announce that I will reside in Craven County, Marine Corps Air Station Cherry Point. I've been trying to get familiar with the area and decide what locations would be ideal for a live in flip. Eventually, that house would become a rental property (see my first few posts for the game plan). Anything in Havelock would make sense because of the commute. I spoke with a real estate agent today about different locations like Tucker Creek, Carolina Pines, Carolina Colours, Taberna that are pricer but may offer an opportunity for value-add and better tenants. Of course, this is all speculation to me until I'm able to see it for myself. Does anyone have any insights about the area?

Thank you for the input gentlemen! This post may have been fueled by impatience as I received my PDS earlier this morning. Cherry Point, NC will be where I reside. It is a mere hour or so drive from Jacksonville, so that will help me get acquainted with the area and I could possibly end up investing in both locations.

That seems to be my default option at the moment! Currently, I am in Quantico, VA. Within the next month or two, I'll be in Jacksonville, NC only for 6 weeks.

Hey Steve,

Personally, I would not go through with this. You make your money on the buy side. If you buy below market value, you protect yourself from a potential depreciating market. Purchasing at retail with other people's money could turn into a disaster if you cant refi or a class C tenant leaves in the night or damages the unit. Based on the numbers, this would not be worth the risk. I would practice tactical patience in this case (I know, it's hard!) and continue looking. Good luck with your search! I'm in the same boat!

-Paddy

I feel as though this maybe be unique to military personnel, but also pertains to those who are just starting out. Contrary to my previous post, I am now uncertain of my next Permanent Duty Station (PDS) due to the Military Occupational Specialty (MOS) I was assigned. I was studying the Jacksonville, NC area diligently and becoming familiar with the different sub-markets within, but now East/West Coasts are both possibilities (maybe even Hawaii or overseas). I'll be in that area for MOS school, but it is unclear whether I will be stationed there permanently. My question is: How can I be productive in this time of uncertainty? What actions would be an investment or catalyst for my future real estate endeavors, regardless of the location?

V/R

Paddy

Thank you for the advice everyone. @Kevin Romines that is a great approach. Never thought to use a title company in that sense. That should be a quick tip!