All Forum Posts by: Troy Parker

Hello BiggerPockets community,

As a first-time homeowner in Florida, I've encountered some unique challenges, including the need to pay for an insurance policy upfront for a year in escrow due to the home's initial condition. While this initial policy allowed me to secure conventional financing, I'm now in the process of planning and executing renovations to enhance the value and appeal of my home, with the goal of switching to a different insurance policy after completing the remodel and being refunded the unused portion of the escrow. I'm wondering: can renovations actually help reduce insurance costs?

Why Renovate?

I'm committed to making strategic renovations to improve the home's structural integrity, safety features, and overall condition. By investing in quality renovations, I hope to enhance the value and appeal of my home, as well as potentially lower my insurance costs.

Strategic Renovations to Consider

1. Addressing Four-Point Issues: I've addressed the issues that needed to be rectified before obtaining conventional financing. By improving the overall condition and safety of the home, I'm laying the groundwork for potential insurance savings.
2. Quality Renovations: I'm focusing on making renovations that will improve the home's structural integrity, safety features, and overall condition. I'm working with a reliable contractor and investing in quality materials for the master bathroom, kitchen, and guest bathroom renovations, which I hope will position the home for potential insurance discounts.

Benefits of Lower Insurance Costs

By strategically planning and executing renovations during the remodeling process, I'm hoping to lower my insurance costs and save money in the long run. After completing the remodel, I plan to switch to a different insurance policy and be refunded the unused portion of the escrow, making this approach a win-win for improving my home and saving money on insurance.

Additionally, by paying 5% down and planning to reach 22% equity in the property to eliminate PMI, I'm taking proactive steps to reduce my monthly expenses and make homeownership more affordable and sustainable in the long term.

Conclusion

I'm curious to hear from the BiggerPockets community: have you found that renovations can help reduce insurance costs? Are there specific renovations or improvements that have proven to be more effective in lowering insurance premiums? As I continue my renovation journey and explore ways to enhance my home's value and appeal while saving money on insurance costs, I would appreciate any insights, tips, or advice you have to share.

Thank you for joining me on this journey, and I look forward to hearing your thoughts and experiences as I continue to navigate the world of homeownership and real estate investing in Florida.

Chronology of my first property purchase.

• November 2023 – Preapproved for 250k. Began scanning MLS everyday to find a deal (I am my own realtor and this is my first transaction).
• January 2024 – After searching deals daily, I saw a property listed that day for 219,500 two blocks from my parents home and promptly made an offer that day for 222,222.
• Listing realtor kept the bidding open for a week and asked for a counter based on competing bids (in hindsight I don't think there were actually other bids). I countered: 224,444. My offer was accepted and we were put under contract for a bank owned home that was recently foreclosed.
• The four point discovered errors that needed to be rectified prior to obtaining conventional financing. Luckily bank agreed to make repairs needed to pass four point.
• I had to get a renovation loan insurance policy where I paid for a year up front in escrow and they would pull $400 a month till renovations were completed and then I could find a new insurance policy and the remaining escrow would be transferred to the new policy.
• Paid $540 for an appraisal. Property appraised for 245k; however, it was classified as a c5 which prevented most lenders from issuing conventional financing.
• I contested the appraisal and the appraiser held their ground, but their supervisor told me that if I slapped a coat of paint on the cabinets (these needed to be replaced due to wood rot) it would be an easy c4.
• I paid $520 for a new appraisal, contacted all my family and friends, deep cleaned the home and put a fresh coat of paint on the rotted cabinets and over the doors. Second appraisal came in as a c4 and at 240k value (woohoo 15k equity gain).
• After two extensions, a litany of repairs, issues with the four point and appraisal, I finally closed on the home 3/29/24.
• I put 5% down, expecting to get an additional 2.5% back from my realtors commission. I planned to put in money out of pocket towards renovations to force appreciation, get to the 78/22 debt to value, and eliminate PMI.
• I got quotes from 4 different contractors. 2 didn’t work out, 1 was very expensive, but number 4 was perfect. A little unreliable with timing but I wasn’t in a hurry and the price was right. I was going to continue living with my parents until the renovations were completed.
  
• I hired contractor 4, put a lock box on the property and starting purchasing materials and placing them in the garage for the contractor to get started. The scope of repairs include: complete renovation of master bathroom, kitchen, and guest bathroom.
• I spent about $1,700 on materials for the master bathroom (vanity, lighting, tile, grout, 2 medicine cabinets, cement, drywall, etc.). Contractor quoted me 4k for the labor. Total $5,700 for bathroom remodel.
• I have begun starting to look for cabinets now that I have completely budgeted for the master bathroom and the contractor quoted me about 2k to install the cabinets. My budget for cabinets is 8-12k.
• I am hoping to remodel the guest bathroom for around $4,000.
• Being conservative, I expect to spend around 25k in renovations for the master bath, kitchen, and guest bathroom. I expect the property to appraise for 300k after renovations.
• After renovations, I plan to find a roommate and rent one room for $800 a month and split utilities or $900 flat. I signed an addendum that I have to live in the property for one year as a primary residence.
• After year one, I am torn on whether I should flip the property (it's a wood home built in 79 in a flood zone) and expect around a 30k return. Or after I find a new insurance policy and eliminate PMI I expect my monthly expenses to be around 2k and I expect the property could rent for at least $2350 and potentially 2,500. I would definitely hire a management company if I plan to rent the property.
• Back up plan is to stay there two years, sell the property and avoid paying taxes.

Fellow BiggerPockets community, I would love some advice on evaluating whether I should flip the property to reinvest in a bigger home or multifamily unit or rent the property with a management company?

Hello BiggerPockets Community!

I am officially under contract for my first home purchase and am scheduled to close 2/17/24! 

I am shopping rates between PNC bank, a credit union, two private lenders, and a potential lender. These are all thirty-year fixed conventional loans for a first-time home buyer using the property as their primary residence. 

Rates: 

- PNC - 6.25%

- Credit Union - 6.8%

- Private lender one (original preapproval) - 7.1% [6.5%*]

- Private lender two (Works with my broker and is very easy to work with) - 6.75%

- Verbal lender (coffee shop connection that works for another broker) - 5.0%

History:

11/1/23 - Got preapproved with lender one two months ago and made an offer and am now under contract as of 1/2/24.

12/30/23 - Reached out to private lender to see if he could do better because I was shopping rates. Private lender two unofficially offered "a little under 6.5%" (6.125% with a point).

12/31/23 - Verbal lender approaches me in coffee shop and says he finds deals for his broker and earns a commission. Verbal lender said he had a meeting with his broker and called me later and quoted me 5.0%. 

1/2/24 - Reached out to private lender two who works with my broker (I'm a realtor). Private lender two offer 6.75%, pointed out a discrepancy on my credit report and offered to send it to me. I told private lender two I had a better offer close to 6.0% with a point. Private lender two told me she could not beat that offer but would review their offer to point out any red flags. 

1/2/24 - Made wire for earnest deposit and got a quote from PNC at 6.25% (6.0% with 0.975 points).

1/2/24 - Reached out to verbal lender to see what info he needed and he responded that he was looking into it. 

1/2/24 - Reached out to all lenders and communicated that I plan to lock in the best rate by the end of the week. 

Considerations:

All of these lenders have acknowledged they can match or beat a rate with another preapproval letter. My current preapproval letter is old. Private lender one's official offer was at 7.1% and I don't have his second offer officially. I don't want anchor the price high with my old preapproval letter. In all my conversations I have avoided showing my preapproval and said I would be going with the best rate and seeing what is most competitive. 

I tried to get private lender two to come down to 6.0% because she is the most proactive and could foster a future lending relationship. I'd be thrilled if private lender one could do 6.0% with no points. I'm hesitant about the potential lender because he seems slow. While I trust my coffee connection, I haven't gotten anything in writing from this alleged 5.0% offer. 

Questions:

How many lenders do you typicially reach out to? How do you leverage other offers, do you give them a copy of your preapproval or tell them you have other offers and ask for the most competitive? What do you think the breaking point is for interest rates in other words, when do you know you've reached the bottom of your rates you qualify for?

Jonah, thank you for the response. 

I factored in 2% of the purchases price in my closing costs calculations. The home is in a great location and I expect it to appreciate well and have desirable tenants. I'd classify the home as "B class." I plan to hold and rent long term, but on year four I would consider flipping if I live there two years to take advantage of the tax savings and potentially buy my first multifamily. 

The rental rate is a little bit of a concern. I believe I can conservatively rent it for $2,300 monthly; however if I rate at that rate I'd be negative cash flow on year two. I believe I can rent it for $2,400 monthly, which would make it cash flow. A lot of this will come down to my repair costs, which may fluctuate a bit. I am trying to do as much work myself as possible, but plan to hire a contractor for the kitchen and bathroom renovations. 

Update: I called my listing agent and there are still no other offers and mine expires on Thursday. I am hopeful I will hear that my offer is accepted tomorrow afternoon. 

I am in Daytona Beach Florida and I have seen a couple foreclosures start to appear. I made an offer on one earlier today!

Evening BiggerPockets community,

I have been sitting on a preapproval letter for a couple months, analyzing deals daily, waiting for the right deal. I finally found it yesterday. A bank owned 3/2 foreclosure in my neighborhood listed for 220k. The listing stated there was a brand-new roof, HVAC, and flooring. The kitchen and master bathroom need to be completely gutted and remodeled. I had a family friend who was a former contractor inspect the home and he found no issues with the foundation, electrical, or plumbing (I still plan to get a subsequent inspection). The walls have mild discoloration which I plan to wash and then subsequently paint by myself. I plan to replace the doors and windows to make the home more energy efficient.

The property was listed yesterday, and I promptly drove at night to inspect the property (thanks for the tip Barbara). I called off work and I looked at the property again in the morning and contacted the listing agent to see if there were any pending offers. The listing agent indicated that there were no offers, and it was in the "First Look" period until 1/6/24. The listing agent said they would present all offers to the bank on Friday. I subsequently sent an offer for $222,000.00 with a preapproval letter that would expire on Thursday because I could also send a follow up offer on Friday. I went slightly above listing because my research showed that there was not much negotiation room in foreclosures and the bank had put in around $196,000 in expenses and fees.

The properties across the street and adjacent to me are worth about 290-310k (I picked the worst house in a good neighborhood). I am estimating that repairs and renovations will cost between 45-60k and expect the home to be worth 295k after forced appreciation. I plan to put 5% down, pay for the renovations, reappraise, and hopefully eliminate pmi. I am also a licensed realtor and saw the buyer's agent receives 2.5% in compensation and 20% of that 2.5% goes to the broker. I expect to get $4,444 in compensation, which I plan to put towards my 5% downpayment and supplement the remainder with cash.

I plan to live in the home for two years and make renovations while I live there. Year three I plan to purchase another live in fix and hold rental with a 5% down payment and using my buyer's agent commission towards that down payment. Rinse repeat.

If my offer is accepted, I plan to take pictures of the home and show my progress on my BiggerPockets profile. This is the beginning of my real estate investor journey.

What do you think of my plan? What should I be looking out for?