All Forum Posts by: Richard Duane McClellan

Not a CPA.  However you should depreciate the decking.  Ask your CPA if the Trex material would be considered an impaired asset and if you can expense whatever the remaining value is all at once.

I've been using RentRedi.Com.  I like it.  Great customization on setting up rent, managing properties, assigning rental income to different bank accounts, etc.

Hi Everyone,

I purchased a condo in Arlington, TX in late February.  The SDN stated there was no prior flood, flood damage, or flooding at all on the property, and my inspection did not find any of these details either.

Had the seller accurately represented the property, I believe the listing price would have been lower, and subsequently market place offers would have been lower.  My question is:  Is there a rule of thumb for value differences when a property has had some sort of material damage relative to like properties that did not have said damage?  Would it be 15%? 30%? 5%?  I want to make a demand for this difference.

Details:

Fast forward to my renovations starting in March 2022 after close -- I am seeing a lot of water damage as I being work.  Mold, rotten MDF, crappy repairs to get the cabinets to "look" ok, all of it behind cabinets, appliances, and generally all covered up with the thin cabinet siding you can buy at HD or Lowes.

It was apparent to me that there had been some sort of significant water event, but I could not prove the seller was aware; however, a few days later, I was chatting with a neighbor, and she asked if I was aware of the flood that had occurred in the property.  She mentioned the local housing authority had inspected the property while a prior section 8 tenant was in place, and had cited it as deficient and thus disqualified it for section 8.

I called the housing authority, and they provided a copy of an inspection report from May 2021 confirming the neighbors comments.  It's well documented and lists a variety of places where water was intruding in the home.  I also managed to get in touch with the prior tenant who corroborated the above details and the also provided 30+ pictures of the home with water intrusion and sandbags on the exterior in a few places.

Status Today:

I sent the seller a demand letter that I wrote.  In it, I asked for ~$6,000 to cover the cabinets, drywall, some mold remediation, countertops, paint, and a few other things.  

I also asked for all information regarding what they knew of the water intrusion (how was it getting in the house when it rains, did they have any professional inspections identifying solutions, where solutions taken, what repairs were made). I felt this was a fairly generous offer after presenting them with the evidence above.  

They ignored the letter and made no response.  It was sent to them by their RE agent, and so I know they received it because they confirmed it with him.

I have since hired a lawyer.  The lawyer is sending a second demand letter on Friday.  It will include:

• the above $6,000, 

•a request for the same information regarding what they know and what steps they took to fix, 

•the lawyer's fees

•And some amount for what I believe is over paying for the property.

What does the community think?  Any other steps that I should be taking to remedy my problem?  Should I be asking for an amount to cover market value in addition to my actual repair amount?

Thanks!

Michael Plante: No, that is not quite the case.  It is a duplex.  I am going to occupy one side and rent the other.

Thanks Melissa,

I have enough cash for 20% down + the additional 10K for the purchase price that exceeds the sales price.  I do not have enough cash to buy the entire property without financing.

I am being told the asset manager for Fannie Mae is not willing to extend the contract.  Additionally, I put an offer on this house 2 months ago and lost the bid.  The buyer at that time failed to close on time as well because they were attempting a renovations loan and failed to get their contractor bids together by the close date.  The asset manager at Fannie Mae had the property back on the market in 48 hours and this second time I was able to win the contract.

We are going to ask for an extension, but I am trying to find some solutions first.

Thanks

Hi Bigger Pockets,

I ran into a problem yesterday with my first investment property that I am trying to purchase and I need some advice.

Situation:

The underwriter for my conventional loan is denying the loan based on the property being listed in "fair" condition by the appraiser.

Appraisal:

In its current condition, the appraiser is saying the property is worth $160,000.  Items listed in fair condition include: the 15 year old carpet, new appliances, counter tops, sinks, bathroom cosmetics, minor wood rot, new windows, and loose stairs on one of the patios and new air conditioners.  These are things that I would have done anyways. The underwriter is requiring all items on the appraisal marked as fair be repaired to average condition.

Buyer (me):

I am able to put 20% down and I have excellent credit. Additionally I will be owner occupying this property.

Seller:

The seller is very unlikely to provide more than 1 extra day to close.

Property:

The property is located in Richland Hills, Texas and it is a duplex.  The purchase price is $170K and it is a FNMA Homepath property.  I have the cash  to cover the difference in appraisal and sales price and enough for 20% down.  

Financial Performance:

Total repairs are estimated at $40,000, closing costs at $10,000, and purchase price at $170,000 for a total cost of $220,000. Using $1,100 per month rents each ($2,200 total), I think my NOI will be $14,573 in the first year and my BTCF at $4,900. Using a 7% cap rate, I think the property value is $206,000 and the return on equity (cash on cash) at 20% is 13% annually.

Do I have any options to make it to close on Thursday for this property?  My lender is a local bank and will provide a renovation loan to me, but it will take 2+ weeks to make it happen.  

Thanks in advance for any advice or options.

Hi all,

Can anyone provide some advice on obtaining a mortgage for a non warrantable condo that I would use as a primary residence?  Maybe a lead on a potential private lender, or portfolio lender?

I have spoken with a few local banks already, and they all require 20% down.  I could pull from my 401K, but do not want to do this.  Could I somehow use those funds as collateral to secure a lower downpayment loan?

Other details include:

1.) I want to put 10% down or less

2.) Non warrantable because one person owns 3 of the 7 units

3.) Located in a great downtown area in the DFW metroplex

Thanks in advance,

DM

Before Tax Cash Flows (BTCF) divided by All Cash In (Typically Down Payment + Closing Expenses)

BTCF = NOI - Debt Service, so yes you would include debt to determine cash on cash.

I ran your numbers through my model, and I got a negative cash on cash and a DCR of less than 1. BTCF of -33731.

PGI: 900,000

Expenses: 145,000

NOI: 755,000

DS: 788,731 ($65,728 * 12)

BTCF -33,731

Based on my understanding, I'd pass on this.

Good luck with everything!

Hi Everyone,

First Post!

My goal in 2014 is to invest in my first property. I am considering a B&H multi family approach.

Bigger Pockets has really inspired me to begin a RE business and it has definitely empowered me with new knowledge to have the confidence to do so.