All Forum Posts by: Padric Lynch

Lets say I am purchasing a property utilizing a lease option. During the option period I will be making significant improvements and the purchase price is already discounted. I have it under contract for 80k, but after all improvements, the ARV is 125k.

Am I forced to seek financing on the 80k purchase price, then financing on the 125k value (double close)? Or is there a way to finance the property at the 125k value, pay the seller their 80k, and have the remainder as a re-coop of improvement costs?

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I've had incidences of co-mingling funds unintentionally and some other mistakes. How do I get back on track and re-gain the protection that my LLC provided?

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I had a motivated seller call one of my bandit signs in Morehead City, NC and had requested for me to look at his property, a 2001 manufactured home on a permanent foundation on its own parcel of land in Smyrna, NC, owned free and clear. After discussing the motivation to sell and the specs of the house the seller said a realtor priced it out at an ARV of 65k. Skeptical, I asked what they were trying to sell the house for and how low they were willing to go. He said he could do 2/3 of the value, "maybe 30k?", which was enough for me to investigate further. We set an appointment for the following day.

When I drove to the property, the location was a bit more rural than I had expected and a little bit off of the beaten trail. I was put at ease seeing that both a new double wide and stick built home were next door to the property. I walked the property with the seller and his brother, building some rapport. It looked to be in decent shape. The roof was original and the water heated was leaking into the subfloor, but those were the main issues. Carpet, paint, countertops and curb appeal were the cosmetic concerns. Going into this interaction I had agent opinions and comps leading me to an ARV of 40k, with rent comps sitting around 650-700 per month. I initially suggest seller financing with a large down payment, but they were looking for cash. I threw out 20k, and they accepted on the spot. We filled out and signed the contract I had brought just in case. We were both happy with that number.

I immediately had my contractor out to the property the next day to go over the short scope of work. The bid came in a bit high. I negotiated it down, but it was still more than anticipated based on my initial assessment (still learning). I went back to the seller to admit my mistake and re-negotiate. After a small back and forth, we were able to agree on $17,500. Whether it was a good idea or not.. I gave them $100 cash before I left. They had talked about their money issues and I noticed that the seller and his brother were in the same clothes as before.

This deal was an education in probates. The sellers did not probate the will before engaging with me to buy the property. My attorney helped me look into the status of the will and walked me through the steps to help the seller take legal control of the property. I ended up hand walking them through each step, i.e. filling out applications, going to the courthouse, and posting ads in the paper. I was giving them money to pay for fees and miscellaneous charges throughout the process, which had me uneasy since there was no guarantee that the deal would go through. Nevertheless we were able to accomplish everything, only pushing closing out by a week.

At the end of the day these brothers were in a bind. They were both unemployed and trying to move to find a better quality of life and employment. I’m glad that I was able to help them through the probate process and close on the house. This is the third off market deal where a seller gave me a hug and graciously thanked me for my help. That never gets old, and it always makes up for some of the nasty phone calls I receive from my marketing efforts!

After closing, I spent the following month managing a small renovation. Due to COVID-19, I had a little bit of extra time on my hands so I decided to do some of the work myself while overseeing the sub-contractor. The scope of work was mostly interior and exterior paint, subflooring, flooring, finish work and landscaping amounting to approximately 10k for materials and labor. Currently, the property has been completed and listed for a little over a week with a lot of applications and interest. Should be rented here in the next week or so!

I thoroughly enjoyed acquiring this property, from lead to listing it as a rental. I was able to learn about the probate process, develop relationships at the courthouse, help the sellers re-locate, and work with new partners to finance the deal. “Tuition and commission” were achieved in this case. Now I am ready to have it rented on a long term lease, put it behind me, and find the next one!

Please let me know if you have any questions about the deal.

Thanks,

Padric

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Has anyone ever BRRRR'd a single wide (on its own land)? If so, what financing did you use? Were the terms worth it?

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Welcome to the site James! Sounds like you have more experience than you give yourself credit for. I hold an REI meet up group in Jacksonville, NC that meets monthly. Pm me if you're interested in attending the next one.

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I have a studio apartment in New Bern, NC that will need an over haul once the tenant moves out at the end of February. My property manager is also an investor and has experience with managing contractors. I will be giving him the reigns to handle and manage the work being done (Paint, flooring, light framing to add a kitchenette, separating utilities, and various finishes).

My question is: How is the agreement to manage the project typically structured? And what are the major considerations?

Currently, we've agreed to keep the management fee in place while the property is vacant and the work is being done. Additionally, for every visit to the property I will pay a $60 flat fee. Each compensation method seem reasonable and fair.

That compensation will cover the following services:

- Managing the contractors and subs
- Inspecting work
- Authorizing draws
- Providing updates and pictures
- Making small dollar amount decisions and using discretion based on the scope of work and overall project intent provided by me

I'd love to hear some thoughts on how others have structured this and what roles and responsibilities were expected from their project manager.

Thanks,

Padric

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@Tanner Jenkins No problem. You are correct. The VA loan is an owner occupied loan. In accordance with the VA, I will occupy the property and I intend to stay there until I PCS. Work is currently being done to the apartment, so I will be moving in shortly. The VA expects you to move in within 60 days after closing.

To my knowledge there is not a set time-frame in which you must live in the property before moving out. However, I've been told by lenders to stay at least a year before considering a move. Hope that helps.

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BP!

This deal was an absolute project to get done, and not everything has gone according to plan. It was well worth it, for the sole fact that I learned a lot. This mostly came from some hard realities that I had to face by not being as detail oriented as I should have during due diligence. Even with the setbacks, the property will cash flow well even as a house hack.

Finding the Deal

I found the property on the MLS while doing a casual scan of what inventory was in the area (Newport, NC / Morehead City, NC / Havelock, NC / Cape Carteret, NC / Jacksonville, NC / Camp Jejeune / MCAS Cherry Point). I came across the subject property, a 1.6 acre parcel with a manufactured home, an in-law suite apartment on top of a commercial auto garage, and a commercial workshop listed for 220k. It was over 6,500 sqft of commercial and residential space which had been on the market for over a year. Curious, I took a drive to do some reconnaissance. I was even more impressed with the property as I drove by. I decided to knock on the door to see if the owner would entertain a quick showing. She was delighted that anyone was showing interest in the property and gave me the full tour as we built some rapport. My intuition told me I'd found something worth looking into, so we discussed potentially doing the deal off market in order for the seller to save a RE agent commission. She pulled her listing from the MLS a couple weeks later.

Negotiating

Running the numbers were tricky. I had to research rental comparables for 3bd/2bth manufactured homes and 2bd/1bth apartments in the area for the residential units, while the commercial units were assessed by what income I could receive in a worst case scenario. I considered the going rate for personal, RV, automotive, and boat storage and the opportunity cost of running a small storage business myself. However, I knew it was likely that a contractor, plumber, or landscaper would find the commercial space attractive. I came to the conclusion that 195k was a reasonable offer, factoring in the updates and utility meter separations that each unit would need. The offer was well received and we were under contract. Due diligence began with a home inspection, walk-through's and quotes from contractors for repairs and meter installation, and gauging the market's interest in renting the commercial units. Both contractor and inspector came to the conclusion that there were roof leaks, sub floor rot, and mold, along with other minor repairs. I brought these issues to the seller, and after haggling for a week, we came to a new price of 175k. I know my rehab costs would be higher with more out of pocket expenses, so I asked for 7k in closing cost assistance and increased the sales price to 182k.

Looking back, I did two things wrong. I did multiple contractor walk-through's for the auto garage and warehouse in lieu of a formal inspection, thinking that would suffice. I also under estimated the cost of what I may find under the flooring and behind the walls. If I had known that the commercial spaces needed to be 100% rewired, and that the residential space needed new sub flooring, sheet rock, and tons of mold and rot remediation, I would have been more set on a lower price. However, I didn't have that information at the time to use as ammunition to justify that lower price.

Closing and Future Plans

Using my VA entitlement, I scored a 30yr 3.375% Loan. I had to bring about $500 to the closing table. The contractors who were slated to start work on the house expressed interest in renting the commercial and residential spaces. I had my property manager draw up commercial and residential leases to begin on the day of closing. The apartment unit will be renovated as well, and I will be moving in before the required "within 60 days" mandated by the VA.

When we started the rehab, my costs went from a 30k estimate to a 60k estimate. There is no guarantee that I will see all of that money turn into equity. I say that because the property is one of a kind and hard to value in the first place. Once the work is complete, I will have it appraised once more and see if there is any equity for a potential HELOC. I will hold indefinitely. It will take me about 5 years to recoup the rehap capital that I anticipate putting into it. At the end of the day, I traded capital for cash flow and an education. I'm not thrilled about it, but I can live with it knowing that I will make better decisions next time.

Here are some numbers:

Price: $182,000 w/ 7k in closing costs

Loan: $188,000 (VA funding fee financed)

Current Appraisal: $182,000

Rehab Estimate: $60,000

ARV: TBD

Rent Roll: $2,500 ($3,100 following the house hack)

Cash to Close: $500

Expenses

Mortgage 30 yr @ 3.375%: $830 mo

Property Taxes: $776 yr

Insurance: $3,400 yr