All Forum Posts by: Scott Vaeth

I purchased a house in South Carolina this past year with the goal of BRRRRing it. I currently live in it as my primary residence but had plans to eventually rent it out and then cash out refi once I reach 20% equity in the property. I'm now realizing that in the state of South Carolina, the tax rate jumps 2% for rental properties to help fund public schools, a $600/mo cost that I didn't account for when using the calculators in the earlier stages. By the time I reach 20% equity (likely 3+ years away), my monthly mortgage payment will come down when I refinance, but $600 is a big hit to the numbers. I feel like these are my only options:
- House Hack: Would I still need to pay the 6% tax rate if I'm getting rental property insurance?
- Renting it Out: The likely rent I'd get in this area will cover half my mortgage payments at the moment
- Add Square Footage: Taxes will likely go up significantly
- Build an ADU: Overall ROI will likely not offset much since it'll still be counted as value tied to the one house
- Selling Off Land: Sits on .5 acre that I might be able to sell. This obviously will only get me so far. 

I already have some equity in the property after doing a complete rehab but I don't want to diminish my returns selling it after one year, paying for commissions/closing costs. It's in great location that I'm confident will continue to appreciate. However, the opportunity cost is that I won't have funds to invest with my current salary as long as I have this house. Any advice would be greatly appreciated.

@Mark DennisI've considered short-term at one point as well. It does seem like there are a few paths / exit strategies that I could take here in case one fails. It's also outside of the downtown Greenville city limits, so I can have an Airbnb legally if I choose to. 

Was your short term rental in Florida? 

@Nicholas L. Apologies for the lack of info here. I ended up getting in during a high interest rate at 7.5%. I figured this was a great value add opportunity and a way to lock a property before competition comes in when/if rates drop. This house qualified for a homestyle renovation loan so that's what I ended up doing. I ended up paying 5% down and 5% towards the rehab required. 

3bdrm/2ba - 1627 sq-ft. - .5 acre (which is large for this area)
Purchase price - $285K
Rehab - $75K
ARV - $400K
PMI - $75
Taxes - $2.4K
Rents - $1.9K - $2.0K (currently)

I'm moving in with my partner, who will be paying rent. After 1-2 years of living in there, I'm considering renting out the guest room or building a second unit on the property via extension or adu then living in one of them. My short term goal is to cash out refi to get into another property but understand I would need more equity in the house. I guess my dilemma is the strategy to get to that point. The long term goal is to rent out to tenants long term and scale into multiple properties. As you can see, the numbers aren't great from a CoC return standpoint with current interest rates, but the location is strong - great schools, close to large hospitals, 10 mins from downtown, and popular suburban towns nearby. I think there's more here than an appreciation play.

@Julie MuseMy end goal is to rent the house out long term and cash out refinance into another property. However, I only put 5% down on the property, and it's currently being used as my primary residence, where I need to live in it for at least a year. I have a partner who will be assisting with my mortgage payments, so I'm hesitant on whether I should house hack, build a second unit on the property, or just live in it until I have enough equity to do a refinance. 

Building a second unit on the property is an opportunity I see, but haven't dove fully into the numbers here. 

@Jonathan Greene It's currently a SFR that I'll be living in for now. I have a partner who will assist with the mortgage, but I'm considering renting out one of the other rooms after owning it for a year.

I have this idea floating around to build an extension on the property or a separate ADU and finance it myself prior to refinancing, but that might be a bold move this early on in my REI career.

I recently bought my first investment property that will start as my primary residence with 5% down. The goal is to BRRRR it, as it required a lot of work, then house hack during the time I will be living there. From my understanding, I'll need 20% equity in the house for me to do a cash out refi which may take years to accomplish. Now that the rehab is complete, there's some equity in the property, and I'm moving in, I can't help but wonder if it's smart to take this time to do something on the side to pay down my mortgage faster or start educating myself on screening tenants and doing my due diligence. I would think having a landlord or rental dwelling policy is a much higher cost to be mindful of. I wasn't sure if other people at this stage when starting out feel the same way. Any advice is greatly appreciated!

Great advice @William Simpson @Jake Baker The roof will definitely be repaired in the near future, I just wanted to ensure I allocated the left over contingency funds in the best way possible. The next hurdle is getting the work completed before reaching the deadline to use those funds since the contractors I've been using are in the middle of another project. Would it be risky to front the remaining costs (outside of the contingency funds) to incentivize them to get the work done within the timeframe needed? Or is that a common practice among trusted contractors and investors? 

I recently purchased my first property that I plan to BRRRR, and had used a homestyle renovation loan which allowed me to use a bank for the mortgage and rehab. Before the work could be done, I had to set contingency funds aside in case something went wrong. Luckily, I didn't need to tap into these funds for the initial work but I have a choice given to me: either have the contractor do more work or have that money go towards principle. 

Following the initial scope of the rehab, my insurance company told me I'd need to update the roof for continued coverage. Is it worth using those contigency funds to help fund the roof or put that money towards principle so I can reach 20% equity sooner. If I don't use those contingency funds for the roof work, I'll need to fork over an additional $5K in cash. However, from my understanding, it takes a long time to pay down the principle when making mortgage payments. I wasn't sure if putting $5K towards principle is more valuable than allocating it elsewhere. Any feedback from this community would be greatly appreciated!

Investment Info:

Single-family residence buy & hold investment.

This house is 1627 sq-ft. and has 3 bedrooms / 2 bathrooms. It's in a reputable school district and sits on a .5 acre which is a lot for the neighborhood. The property is also less than 10 mins from downtown and major hospitals.

My plan is to live in it for 1-2 years while house hacking one of the bedrooms. The goal is to eventually rent out the entire house, pull equity out of the first house, and repeat the process.

What made you interested in investing in this type of deal?

I've explored various avenues of real estate investing, yet I've consistently found myself drawn to the BRRRR strategy and house hacking. Although my initial plan involved investing in multi-family properties, I saw alternative paths and exit strategies in case of unforeseen challenges with this opportunity. I'd like to grow my portfolio with multi-family properties down the road.

How did you find this deal and how did you negotiate it?

I looked for properties that had been on the market for longer than 30 days. Not only was this property on the market for 60 days at the time I found it, but it needed a lot of work.

How did you finance this deal?

I utilized a HomeStyle Renovation Loan, a conventional loan that enabled me to finance the cost of the rehab. I made a 5% down payment on the house, and another 5% down payment was allocated towards the rehab expenses.

How did you add value to the deal?

The inside of the house was a complete rehab that had been updated to code. Luckily for me, I didn't need to tap into the contingency reserves that were set aside. Here was a breakdown of the work done:
- Updated the kitchen
- Updated (2) bathrooms
- Took down / opened up walls to create an open floor concept
- Added LVP flooring throughout
- Added new paint and trim
- Currently negotiating prices to update the roof

What was the outcome?

Before I started the renovations, I got the contractor's estimate checked by an appraiser to show my lender it was a good investment. Turns out, the appraiser said it would pay off. I ended up with around $20K extra in equity, which might not sound like a lot, but I saw this as a way to hedge against unexpected expenses years down the road. Within 2 months, the contractor had completed all the work, and brought it up to code. I have the title of occupancy and can move in faster than anticipated.

Lessons learned? Challenges?

There were many challenges throughout this way of doing things but I learned a ton very quickly. Building a team of like-minded, investor friendly people is an invaluable asset to have. Building that trust allowed me to make certain decisions quicker, which helped expedite the process. Doing your due diligence and collecting research every step of the way is also crucial.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I have an amazing investor friendly agent that I would happily recommend to anyone in the Greenville / Pickens / Anderson area. Shoot me a message and I can send that info over.

Thanks @Sara Showkatian this lender I'm working with is telling me I need to fund 100% with them when my goal was to only borrow the money needed to bring the house to livable conditions. I found it strange that line items like appliances and vanities are added to the total price. Then if I end up spending less than what I was funded for, I would use the remaining money to pay off more principal.