All Forum Posts by: Kerry M.

We bought a HUD home in Maryland. The home inspection came back with so many items needing repair that my son thought all home inspections were written in red ink (red means repair needed.)
If buying as a owner, not investor, there is a lead paint provision that will help you rehab the lead paint for up to $4000 (they will rebate that costs to you) or let you out of the contract if the lead paint estimate is more that $4000 to remediate. This can be important if the property is a rental and, in your state, you are required to pass a lead paint inspection before renting.
We got a great deal on a former duplex, great location and someone is already asking to rent before the rehab is done. But the labor is done by us, is the only way it works financially. Our primary purpose was housing for family, not investment in a regular sense.

The estimate for repairs below or above $4,000 is important. If owner occupied, a repair estimate for lead paint abatement above $4,000 will allow one to get out of the contract, if one wants to do that. If below $4,000 I believe HUD may pay for it?
Our deal with HUD was not owner occupied but built in 1920 with extensive renovation, lead paint and mold remediation needed.

At settlement on Monday, I will get First American Title Insurance. But I would like to substitute their Eagle Policy premier products. perhaps called TOEPP if offered by other companies or ALTA/CLTA in CA. But because my LLC is buying the property, it doesn't work (the product is for 'natural persons.')
I don't understand it well enough. I have talked to my title company (no answers,) First American and an underwriter. Makes me think I am barking up the wrong tree, or that it is a new product.
Is there a similar enhanced coverage title insurance that can be written for LLCs purchasing real estate in Maryland?

You said, "You are borrowing the money from your 401k, and then using it to buy a property. Your sons fix it up and then live in it. As long as you personally own the property, UBIT does not apply."

Can I own it in an LLC?

Oh, thank you. I am relieved. We have a Roth IRA, but no, we are not touching this at all. Our money source is a loan from a 401k to be repaid monthly, not withdrawn.

Boy, thank you.

After repairs, we plan to cash-out refi, repay the 401(K) and rent also. If UBTI on Debt-financed property applies, does it stop when we repay the loan? Or does it start when we've afterwards collected 1,000 in rent or profits?

This may be a net loss but still worthwhile by providing lower cost student housing for my sons.

My future property will be improved by volunteer laborers (my sons), for the benefit of themselves and with the intent of providing college housing for themselves. It is bought cash by withdrawing from a general loan from a 401(K) plan. Pulling out money from tax-sheltered funds for documented college expenses is exempt, I think.

The question is not would an investor do this deal, but can I, the mom of a large family with older teenage children?

I am trying to learn. Is this similar? This is a duplex that we are considering:
Rent at 1.5% of (value after repair - deferred maintenance,)
1.5%(80-40) = $600/mo
3 renters *2400/yr=$200/mo each
30% equity held at cash-out refi (.30*80K= 24,000)

Sale is for $26K, about $21K higher than it should be but the opportunity and timing point to doing it. It is funded with college fund for student housing of 28,500.
Thanks!

I have been on the phone nonstop since my last posting. I welcome thoughts. This is the second investment, fifth home I've owned but only own one home now and this potential one. Purpose primarily is student housing for son(s.)

Numbers:
Property 4/2 SFH HUD home, former duplex in safe neighborhood, 2700 sq ft in fair condition, 3 miles from campus in low foreclosure area, high demand/occupancy/investment near college
Assessment says needs 7K in repairs
Property worth (by assessment) 80K quick sale in finished condition w/in 30 days/if in presence of other foreclosures: 60K, conservative value 70K
(3/1 Property next door sold for $65K last year, Nice 3/1 on same street listed for 89K, 180 days on market)
Paying 26,400
Rehab needed 15-30K (done mostly by husband & sons)
Own cash: 26 + (15-30) for 41-56K total
monthly payments $500 + (311-622) = 811-1122/mo
have 9K in bank to make first 8 months of payments
(15K at 9% on 5 year loan is $311)
hard money loan preferable to other financing but not needed
Exit strategy: 1) Bank financing (after 6 months) to repay rehab costs first, initial investment 2nd
(How do I guarantee a bank cash-out refi?)
2) Lead paint certificate for rentals 2-4 @ 1150/semester = 2300/yr * 2-4 = 4600-9200/yr = 6900 average revenue 10% ROI?
Nut: 70% cash out refi on conservative 70 (bank value of 75) = 52,500
52,500 - 26,400= 26K
If repairs do not exceed 26K, Nut will be ins and taxes, legal, 1/4 util for son
If they do exceed 26K then remaining repayment of initial funds will add $500/mo

Submitted the signed contract to a lawyer for review. Still need to talk to an accountant. Found rent estimates by talking with a local investor who also lives in the area and has been rather successful. Submitted home inspection to a handiman service (a friend) for a baseline of costs. Looked up codes on county website. No permit needed on regular repair of home, including plumbing, electrical and mechanical - although work has to conform to established guidelines. I have talked with the Maryland Dept of the Environment, found a asbestos landfill and contractor who would accept encapsulated material. It is a small job - 6 feet of asbestos tape on an unused heating duct, non friable, done with caution. I have talked to a lead inspector and plan to attend lead abatement classes before doing work in order to rent.

Thank you!
Kerry

We've committed to 3K per child per year of college, which is 57K over the next 10 years. Being able to afford room and board is our biggest obstacle. If the boys double up and my costs are the same whether one or three sons are in the home, wouldn't putting the money into a house, even if not specifically this house, be better than not?
We've upped the repair estimate to 25-30 and are getting estimates from contractors to see what the total costs might be. My husband has done lots of plumbing and electrical but we are not adverse to seeking professional help. The biggest advantage of this house is its size, 2700 Sq ft, and being a duplex (brothers and brothers' friends don't always get along.) The house is in the incorporated part of town, in the county but not the city and still 3 miles from campus.
Based on what I can afford, what should I be looking for?

Steve, I will look into that. We are not using the housing loan with a ten year repayment from our 401(K,) but rather the general loan, repayable in a 5 year period. We will not be the primary occupants but our son will.
Christopher, thank you. I didn't know. The repair clause would be important.
Joel, we plan to do the repairs ourselves. The repair estimate is only for materials.
KC, I strongly suspect the same but within my immediate family we usually can meet deadlines and make the unlikely happen. But that's why I am pleased to ask for opinions is to know ahead of time.