I will be closing on my first buy and hold 3/1 rowhome in Brooklyn Park. Thought I would share my experiences throughout this process. This is by no means a homerun deal, however the lessons learnt and that I will continue to learn throughout this deal is far more important. Those lessons will give me the momentum/traction to launch into much better deals.
Summary
Purchase Price: $108,700
Down payment: 20% (using conventional financing for investment property)
Loan amount: $86,960 at fixed 4% interest for 30 years
Closing Cost: $8202
Appraisal fee: $445 (including in closing cost above)
Home Inspection: $375
Sewer scope: $250
Boiler Inspection: $60
Estimated rehab: $30K (to be covered by personal line of credit)
Where did I find the Property?
The property was listed on the MLS for $115K as a "hot home". I toured the property with my agent the first day it came on the MLS and there were three other groups waiting outside to tour the property as well.
Making the Offer
The importance of not making an emotional offer came into play as I was getting ready to make a $120K (even though ARV was estimated at $150K+ and rehab about $25K) offer based on the attention I saw the house was getting. However, based on counsel from my agent we decided to wait seven days to see if the property would go pending. it never went pending so we made an offer at $110K with a $3500 EMD and seller countered at $112,500 which I accepted because there was still an inspection and appraisal clause in my contract.
General Home Inspection & Sewer Scope
A home inspection and sewer scope were completed which highlighted some things that needed repairs/updates. Circuit breaker had aluminum branch wiring, GFCI in bathroom not grounded, oil fired boiler is 72 years old (still functioning nevertheless), low water flow due to galvanized water supply lines which needs replacing and adding rails to basement staircase. With inspection in hand we asked for seller to make repairs outlined in report and they offered $2400 in credit instead and we countered at $4800, which they came back at $3800 and I accepted. However, I had the seller take it off the purchase price and now the new purchase price was $108,700.
Appraisal
Appraisal was ordered by my lender and the house appraised for $115K, which I was hoping it came in lower than purchase price so that I could negotiate more. Lesson learnt here was negotiate up front rather than waiting, hence I bought the book "Never split the difference".
Renovation
Initial rehab estimate is $30K and I am budgeting $35K factoring reserves and other miscellaneous items.
Market Rent
Home beside subject property rents for $1200/mth AS-IS and home across street that was updated rents for $1500/mth. albeit with an additional room in the basement. Market rent in area based on property managers I have asked, they are saying $1200 - $1600/mth.
Next Steps
Given the all clear from the lender to close and will be closing on Monday 11/16 and rehab begins Tuesday 11/17.
Lessons learnt
Closing cost is not cheap, I will ensure next time I negotiate with seller to split this entire cost and not only taxes and recordation fees.
I bought this in my personal name and learnt that in order to get an umbrella insurance your other general liability coverage for your assets has to be at a stipulated minimum in order to be covered by umbrella. I learnt after 3 years my car was under insured all this time and I would need to increase my coverage in order to get umbrella insurance.
Be bullish with negotiating up front and "never split the difference" but at the same time finding a common ground is important.
Provide contractor with a detailed SOW, DO NOT JUST SAY IT, WRITE IT!
Stick to your numbers and do not deviate.
