All Forum Posts by: Mark S.

I found a 4/2 foreclosure available for sale for about $100K. The PVA says it's assessed at $150K for the past 3 years. It's now being auctioned, with an opening bid of about $75K. My realtor thinks we should at least throw in the opening minimum bid and try to pick it up. It appears to be in good shape and might need some minor cosmetic work. My main concern is how difficult it may be to get a tenant in there. It's conveniently located off the highway, it's just out there a little bit from city limits. Part of me thinks I should just pick it up first and worry about the rest later (speculation), but the other part of me thinks maybe not because it might be difficult to rent. At these numbers, is it a no brainer?

Thanks, @Kurt Kwart I appreciate the kind words. I found a 3/2 foreclosure about 10 miles from my home that I may be going to check out today. The property has been on the market for about 4 1/2 months, just had a 10% price drop, and is in a good area. There's a huge crack in the front brick of it, though, which might mean foundational issues; that's the big IF right now. My realtor is supposed to be checking on it and we'll probably look at it this afternoon.

He did mention something about a "take it or leave it" offer. I'm not all that familiar, but my understanding is that with an inspection, it leaves us an "out," should I decide that I don't want to move forward with the property. Being a new investor, I don't think I want to mess with foundational issues, but to his point, depending on what it is, everything in a house can be fixed for a price.

Bueler?

Hey guys,
I've decided to change up my strategy a bit for now (I started another thread on this). On this quad, the neighborhood is a "D" and I just can't stomach that as a new investor, so I passed.

After a heart-to-heart conversation with my realtor and myself, I've come to the conclusion that the multi-family space may not be for me...at least right now.

It appears that in my area virtually all the multi-family properties are in "C" or "D" neighborhoods, and mostly right on the border of each other. I'm looking for more of a "B" / "C" borderline area. With that said, I'm seriously considering (even though I was previously against it) buying 3/2, or similar, single family homes.

Here are my thoughts:

PROS Price: Based on my somewhat limited cash resources at this time, I can get into a property for quite a bit less than multi-families. Exit Strategy: In the event I ever get into trouble or want out, a 3/2 is likely much easier to unload than a small multi-family. Gaining Experience: I think this might be an easier entry path from a first time investor standpoint to gain valuable land lording experience. Ratios/Rules of Thumb: Buying foreclosures in this area should still allow me to achieve some of the general rules of thumb and generally accepted financial success ratios. Rate of Expansion: Since these single family homes will be less expensive than the multi-families, I should be able to acquire more properties more quickly.

CONS Cashflow: Even though ratios might be better, monthly passive Cashflow dollars will be less. Vacancy: If my 3/2 is vacant, I have 100% vacancy versus a multi-unit where that might only translate into a 25% or 50% vacancy. Competition: It seems like there may be more investors/flippers interested in the single family foreclosures vs multi-units. Rehabbing: Chances are many of these single family homes will need some major work. Do I really want to have to get into the whole ARV thing?

As I continue to ponder what the right next move for me, I also don't want to experience paralysis by analysis. If I were to move forward on the 3/2 approach, here's what my game plan is:

1.) Search for foreclosed homes generally within 1 hour of where I live that are in my budget.

2.) When I find a qualifying property, run some numbers on market rents, crime, etc. for that area to see if if will even be a feasible investment.

3.) Have my realtor get us in to the property to take a quick look at estimating any sort of work needed. Basically, do I just want to run the other way, or is it ultimately worth getting a few contractor bids for the repairs?

4.) Make offer on property with property inspection to my satisfaction contingency clause (assuming that's allowed).

5.) Negotiate. Get an inspection. Get contractor bids. Close the deal. Get to work. Rent it out.

6.) Wash. Rinse. Repeat.

HELP FROM BP NATION: What I would like to hear from all of you are your opinions on my pros/cons (did I miss anything, am I way off on anything), your opinions on my next steps, and either a slap on the wrist to fix some things or a kick in the behind to stop talking and get moving.

Thanks in advance, everyone! You have no idea how much this will help me. I will give back one day when I am in a position to help others and add value.

David Beard I heard back from the local bank today. The loan officer said that, "there has been a recent amendment that prohibits that transaction." I knew it sounded a bit too good to be true. It looks like my options are 15% down on 3/3 ARM or 25% down on 30 yr fixed. Cash is tight. What would you do?

@Daniel Dietz

Thanks for the calculator link. I'm familiar with the site, but not this particular calculator. I'll be sure to play around with it a bit. As for the SDIRA stuff, my retirement assets are spread pretty well among traditional IRA, Roth IRA, and 401(k) assets (both traditional and Roth 401k). This makes it a bit more difficult for me. Additionally, I like the tax benefits, want to use leverage, and want to get in for as little down as possible (don't we all?!). Anyway, I'm not sure this strategy would work best in my situation. I am investing for cashflow and general wealth building - and may very well use real estate to help with retirement income - although I'd like to keep it all separate, if possible.

@David Beard

Yes, I thought it was quite strange as well. The lender seemed somewhat confident, but also a bit hesitant. My guess is he may have been thinking of rules applying to owner-occupants versus investors (although, he clearly knows what my goal is and absolutely said 1-4 units). I asked him to work up some numbers for me next week and get back to me. The only reason I think this COULD hold, is the 3.5% upfront fee he mentioned. We'll see what happens.

IF this does NOT work, and you were me with extremely limited down payment funds, would you:

- Go 15% down on a 3/3 ARM just to get into the property and re-fi out later?

OR

- Go 25% down on a fixed rate loan and scrap every penny to rebuild savings as quickly as possible?

Thanks, guys!

I posted this in another section of the forums, but I'm not sure if it was the right place, so I'm posting it here again:

I spoke with local bank today, and after offering me a 3/3 ARM with 15% down to which I told them I much prefer a fixed loan, I was told that they could likely do a Freddie Mac investor loan for 1-4 units. I was advised that they could probably get the down payment to between 5-10% down on a fixed rate loan. The catch, they told me, is that there would be about a 3.5% fee (of the loan amount) by Freddie Mac to do such a loan. This would be in addition to all other closing costs. Mortgage insurance would also apply until I had 20% equity in the property, and would then fall off. I am told that this loan could likely be done on a foreclosure as well. Finally, the bank said they could probably get me out of some of the normal closing costs with a slightly higher interest rate. My situation is limited cash, sizeable retirement accounts (for my age), and wanting to minimize having to touch retirement accounts (ie, backing out Roth contributions, taking a 401(k) loan, etc.). For this reason, I loan such as this really appeals to me, even with the additional fees, due to the fixed interest rate and low down payment. The alternative is 25% down on a fixed loan, no PMI or 15% down on an ARM. I guess my main question is: Do these loans really exist?

I spoke with local bank today, and after offering me a 3/3 ARM with 15% down to which I told them I much prefer a fixed loan, I was told that they could likely do a Freddie Mac investor loan for 1-4 units. I was advised that they could probably get the down payment to between 5-10% down on a fixed rate loan. The catch, they told me, is that there would be about a 3.5% fee (of the loan amount) by Freddie Mac to do such a loan. This would be in addition to all other closing costs. Mortgage insurance would also apply until I had 20% equity in the property, and would then fall off. I am told that this loan could likely be done on a foreclosure as well. Finally, the bank said they could probably get me out of some of the normal closing costs with a slightly higher interest rate. My situation is limited cash, sizeable retirement accounts (for my age), and wanting to minimize having to touch retirement accounts (ie, backing out Roth contributions, taking a 401(k) loan, etc.). For this reason, I loan such as this really appeals to me, even with the additional fees, due to the fixed interest rate and low down payment. The alternative is 25% down on a fixed loan, no PMI or 15% down on an ARM. I guess my main question is: Do these loans really exist?

I found out the 25% down would be a 30 year fixed rate loan.