CPA
My CPA had called me last Friday about 10 minutes after I left work. She said she wanted to get our input on the data she sent us in early November. Huh?!?! I called my wife later in the morning, and let her handle the communication this time. It turns out the CPA "supposedly" sent us a spreadsheet in early Novemeber via email, but I swear I never saw it. She apologized prfusely to my wife, and said she'd call us for now on after she sends us something to make sure we got it. We still have to give her another boatload of receipts and stuff we found since our last meeting. The CPA called me later and said she resent the spreadsheet, which I verified we got this time. She apologized to me as well, and said she would swing by our place if we wanted to pick up our next batch of receipts. I'm just glad things are back on track now. Glancing over the dpreadsheet, I'm lost trying to interpret it. Accounting was never my forte, and trying to analyze this spreadsheet only enforces this idea. :-/
Rehab
I'm really fighting myself in trying to figure out what to do with this property. The list price of $29,000 makes it one of those deals you only hear about. The problems I'm wrestling with are (1) the units themselves are small - VERY small. I didn't measure while I was there Saturday, but getting the size of the entire property and making a rough guess, I estimated the 2/1's to be about 450-550sfsf and the 1/1's around 250-350sf (yeah, THAT small). I'm wondering if it would be better to convert the place into one 3/2 unit upstairs, and two 3/2 units downstairs. It would definately add to the overall cost, though, but at least the units themselves would be more spacious (about 800-1,000sf each). Reducing it from a 6-unit to a 3-unit might drop the FMV. though, but it could actually make it increase. There is a duplex 4-5 houses down the road going for around $200,000, and the duplex right across the street is in good condition and was assessed this year at $175,000, so I'd still be looking at a FMV of around $200,000+.
The second thing I'm wrestling with is time and money. My wife is not only due in late January, but having twins means she is pretty much restricted to doing NOTHING between now and then. This means I'm in charge of doing almost everything, and having this project added to my workload may mean it'll be sitting a while until can find the time to commit to it. I also have limited funds. I could easily borrow against some equity or my 401k for the $29k, but don't have the money it takes to put $50k, $60k, $70k, or more into the property over the next 3-6 (or more) months. I've been looking into HML's, who offer purchase & rehab packaged deals, but the interest is mind-boggling (14%+ !!!). I may have to bite the bullet with a HML, though, as I will get a nice reward in the end anyway (I hope).
Update:
I guess what I could do is this:
1. Get the propertyunder contract for the $29,000 asking price, so that I now control it.
2. Hire a GC to walk through with me and decide not only how much it would cost to make the repairs, but what repairs to make, and, especially, if it would be wise to convert it from a 6-unit "apartment" to a 3-unit (triplex) - not to mention the code and deed ramifications of doing so.
3. Apply for a loan through a hard money lender (HML). The best I've seen is 14% IO with 5 points. The loan amount can be 65% ARV, which works out very well here (I hope). I could get a $100k loan to cover the acquisition and repairs costs, and use a HELOC or my 401k to repay the HML.
Now to try to solve the time issue. :-(
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2 comments:
The time issue can be managed by using a good contractor, but the key will be finding a good one. Maybe one of the HML people can recommend someone. If they offer rehab deals, why not go with them for everything?
If you go with this, time will be crucial. I would structure your deal with the contractor so that he gets paid incrementally as each milestone is accomplished. If you've got twins on the way, you'll not have much time to babysit the contractor, so regular milestones (with an inspection at each one) are the way to go.
As for the 14% rate, you've played Cashflow before, haven't you? HML in that game is 120% and profits can still be made...
I've been in contact with two GC's, and neither panned out. One was too busy and the other only works in a predefined area of town. I haven't heard from the seller since Sunday evening, so my first order of business really should be to see if the place is even still available. :-P
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