All Forum Posts by: Ronald Fontenot Jr

@Ray Hage

Yeah, it's a horrible situation. I was hoping to find some solution for him here with all the creative minds, but it doesn't seem like the math works.

No, it's not in a dying area, nor rural. It's in a well-kept upper-middle-class neighborhood south of Houston. STRs aren't allowed by HOA rules, so that's not an option. The subdivision is in this weird area where it's just on the outside border of the Texas Windstorm Association coverage area, so he has to pay windstorm through his homeowner's insurance and it isn't subsidized. Insurers consider it a high-risk area and mortgage company requires it. His windstorm insurance is 9k a year! Add that to the interest rates, and it's not a good buy for someone coming into the market. None of the homes in the neighborhood are moving well because of this.

I mentioned to him to mid-term rent it as there are hospitals close by, but he doesn't have the money to furnish it, and he knows nothing about that process. He's been hemorrhaging money for months. He's a LEO, so he's not awash in money, just did a good job saving over the years to build a nice nest egg and it's getting eaten up quickly. I think the emotion of his situation isn't allowing him to see the problem clearly. He'd be better off cutting his losses and dumping it, in my opinion. Seems better than dropping 3500 a month for the unforeseeable future.

He bought this house to live in while he had another one built and the plan was to sell this one once the new one was complete. The market got him. He started building it right before the rates jumped up and was committed to that, so he moved into that one. I mentioned that he could sell the new one and move back into this one, but he doesn't want to let that one go...dream home stuff. I dunno...doesn't look good.

I'm trying to find a solution for a colleague who has a home that has been on the market for some time and is having a hard time selling it seemingly due to the higher interest rates coupled with exorbitant windstorm rates (close to the coast). Many homes in this neghborhood are slow selling. His mother is the listing broker and isn't even booking showings for lack of interest.

Home is beautiful, 5/4/2, 3200 sf, recently tastefully remodeled, needs nothing

Details:

Listed for 380,000 (has dropped price from 411k), approx appraised tax value 406k (market value dropping but county appraised value has gone up), he owes about 370,000. Comps are 380-410k.

Just purchased in May 2021 but has now moved into a newly built home so he's paying two mortgages and needs to sell this one. (horrible timing on his part)

Monthly payment PITI is approx $3400, local rental rates are $2800 -3000 tops

Not in an area conducive to STR and can't afford to set it up for such.

The only solution I can see is him slashing the price and stroking a check at closing if it sells. What do y'all think?

Another option is not to finance the project with your money. Instead, form an LLC and bring the contractor in as an equal partner. Then use OPM to do the deal. Whatever money has to come out of pocket is put in equally between you and the contractor so he has skin in the game. Whatever money is used to rehab the job is only materials & labor. Contractor gets paid at the closing table when the property is sold. The caveat is knowing and trusting the contractor.

Otherwise, just buy and rehab the property with your money and hire the contractor.

Thanks David Bilandzija. That's the information I'm after!

Doug Smith
Jill F.
  Thanks for the information! Can you kind of walk me through the process? I make the offer, if it's accepted I submit my earnest money deposit and then start the loan process? If that's the case, what costs am I looking at for the appraisal, etc prior to closing?

I've found a 4 plex that has piqued my interest. It's recently remodeled and vacant, but ready for renters. It has one 2/2, two 2/1s, and one 1/1. I've run analysis conservatively and it seems it will cash flow fairly well. 

I'm not interested in house hacking, my family is too large for the 2br units. I'm a 1099 and always have been, so leaning toward a DSCR loan.

How long are typical DSCR loans offered for? And do they require the units to have a track record of rent as they are vacant and seller has no rent roll or ledger.

Any advice appreciated!

Mold is one of those things that could be easy or difficult. A lot depends on what is causing it...namely moisture. It has to have moisture to grow. That said, identifying the source of the moisture and eliminating it is the first order of business. Small localized areas of mold are easy to remediate, and there are many products on the market that will kill and aid in removal. You want to watch out for rampant mold growing behind walls and enclosed areas, so taking out some drywall plugs here and there to inspect the cavities is worth the effort. From the information in your post, it seems you have some localized mold and it shouldn't be too expensive to eliminate it.

My advice is to find an honest contractor knowledgeable in mold remediation to do a thorough inspection and estimate for the remediation. It's definitely not a deal killer unless it's infested, so don't panic just yet. But definitely use it as a negotiation tool. Best of luck!

***EDIT*** I just realized this was an older post. Congrats on your deal! I'm anxious to know where you landed on your rehab. 

Please, please, please...get solid estimates for the rehab with bona-fide contractors. On a 2500 sf house that needs everything from the insulation forward, the budgets you've been quoted are very low. I'm a contractor/homebuilder in the Houston area and I can tell you with confidence that those numbers are off unless they are using the cheapest materials and labor they can find. Even then, still low. I'll throw this to you...a quick and dirty little estimate, numbers are labor+material based on what I've spent recently...

Insulation - $6k
Drywall - $10k
Interior doors/trim/shelving - $8k
Interior paint - $8k
Flooring - $12k
Cabinets - $15k
Countertops - $6k
Electrical fixtures - $2k
Plumbing fixtures - $2k
Shower/kitchen tile - $8k
Hardware - $2k
Glass (shower doors) - $4k
Disposal/trash - $3k
Rough/Final cleans - $1k
Appliances - $3k
Misc/unforeseen - $5k
Total - $95k and he hasn't made a profit yet.

It adds up quickly!!! If you want to get your price, you need good materials, good labor, and a contractor that will make a profit. Do a LOT more homework here, please! It seems you'll do ok on the deal, just don't get hung out there by the contractor who runs out of money. I wish you all the luck and hope you succeed!!!

Here's something to consider....location. 

For STR, are you convenient to things that would attract short-term clients? If not, your vacancy rate could be very high.

For MTR, are you convenient to hospitals, corporate headquarters, and other places that would benefit from your rental? No one wants to drive an hour or two to get to work.

If neither of the above is adequate, then your only choice is LTR. 

 If you listen to or watch any of the Bigger Pockets podcasts, frequently they will give you a discount code to use for your first year of BP Pro. That's what I did. It's worth every penny so far and I'll be happy to pay the full price when it's time to renew. Best of luck!