Need help from experienced rehabbers - Posted by Darrel Harris

Posted by Debby in Houston on December 29, 1999 at 13:29:46:

I’ve only been doing this a year, but it’s highly unlikely you can get 100% financing, especially for a non-owner occupied property, and some lenders won’t give you a cash out loan til you’ve had it 6 months. More likely is 60-70% financing. How are you purchasing and rehabbing it? Financing or your own cash? Do a little more homework. Also, $100/mo. cash flow may be slim. 1-2 mos. vacancy, or a water heater repair may wipe out your cash flow for the year. What are your long term goals? If to hold for long time, may be worth it. Good luck!

Need help from experienced rehabbers - Posted by Darrel Harris

Posted by Darrel Harris on December 29, 1999 at 03:34:44:

I’m about to make an offer on a rehab project. I can probably get it for around $21,500, make about $9,000 dollars in repairs and bring the appraised value up to around $42,000. If I’m not mistaken, I could then get a home equity loan to pull out my profit which should add up to around $11,500 after bill are paid. Would it be wise to then hold the property and rent it out? If the entire debt is $42,000, when 100% financed, then I would guess the mortgages would total around $420-$450 per month. I think this property would rent for around $550 per month which would allow for positive cash flow. What would be the pro’s and con’s of this situation? Anybody?

Alternative - Posted by Bud Branstetter

Posted by Bud Branstetter on December 30, 1999 at 10:22:22:

I’m like the others about holding down rehab costs. But instead of renting find an owner occupant for about 43.9K, 3K down at 11.5% ~405/mo P&I. Shorten the term so that the PITI is near $550/mo. Sell the first if needed and collect the cash flow on the second.

100% home equity loans at for owner occupants. Investors get 65% @8.5% to 80% at near 10% loans. Even if you could get your embedded costs out you could still wrap or lease option to a buyer.

Re: Need help from experienced rehabbers - Posted by Carmen_FL

Posted by Carmen_FL on December 30, 1999 at 08:33:58:

I’m with Leslie. As a been-there newbie rehabber, let me tell you that it WILL take you longer and cost you MORE than you think. This deal looks very skinny to me as a rehab. I try to have at least a $30K spread on each deal, so I can make mistakes and come out with at least $15K. If you are selling it, and need to use a realtor (G-d forbid), it would cost you another $2,940; holding costs for 4 months = about $1,200. Now you’re looking at $7,360, assuming rehab actually comes in under budget. There are easier ways to make that kind of money.

If you are planning to keep as a rental, and don’t need cash out, then it may be a good deal. If you refi only to get out of hard money, and keep paying about $250/month (don’t forget taxes, insurance), then you could make a good monthly income. Don’t count on a quick refi, though. Debby is also right - I thought we could go out and merrily refinance after leasing it out to a nice couple - we tried for 3 months before finally giving up in desperation and selling the thing to another investor. The best offer to refi a non-seasoned NOO property was 70% of FMV. We had paid 65% FMV, so adding the rehab costs to that we would have LOST money. Even after a year or so, you most likely will not get 100% refi on a non-owner occupied. Best I’ve seen is about 90%, but 80% is about the norm, assuming you qualify credit-wise.

We vastly underestimated the time (read holding costs) and cost of rehabbing our first 2 homes. The third one we’re a little smarter on. On the first we had a tendency to over-rehab. Now, if it works, and can be cleaned or painted, it stays. Saved us a bundle! My new mantra - “It’s a REHAB, not a REMODEL! I am NOT living in the house!” Although my houses look very nice, they no longer need to be perfect in my eyes.

Good luck on whatever you decide!

Re: Need help from experienced rehabbers - Posted by leslie

Posted by leslie on December 30, 1999 at 04:22:59:

In my opnion you are spending too much. You are spending 30 for a house worth 40 and doing a lot of work to get there. Simply making offers would get you those same numbers on a deal sooner or later without all the sweat and hard work. Which do you need more practice at, offers or rehab?

If you really want to do this one then don’t spend 9k. I try to keep it under 5k. If you are getting out the power tools you are going too far. I’m not kidding. This has proven to be a great rule of thumb many times over. Paint and carpet, then stop there if at all possible. Yes you may repair holes in walls, windows, roof, and doors etc., but no remodling. Most, not just newbies, under-estimate the size and cost of a rehab project, as well as the imagined return in increased value for their time and money spent.

Been there, a lot. Leslie