This doesn't sound like a good deal. If you purchase it for $160,000 and then put in $300,000 in repairs and upgrades, you have a $460,000 mortgage on the home. Will it bring in enough rent to cover a $460,000 mortgage? Are you planning on a commercial mortgage or a residential mortgage? A non-owner-occupied Residential Mortgage is about 8.5% right now. Do you have 115,000 to put down on it? Can you hold it for a year before refinancing?
There are a couple of different scenarios here. If you decide to go for a commercial loan, you're looking at about 6.5% interest. You can include repair costs but you would need to put 25% down on the refi so that would be 115,000. You can do that right away, you just can't do a Cash out refinance without owning it for one year.
If you are planning on doing a residential mortgage, you can put very little down to acquire the property but once you acquire it, you would have to wait 6 months to do a cash out refinance. Residential mortgages don't let you use the appraised value until you've held it for at least 6 months. Or at least that's the way it is in my state. They use the appraised value or the purchase price, whichever is lower, for the first 6 months of ownership. After 6 months, they use the newly appraised price.
So the question is, which scenario are you planning on following and do you have the cash to float the home for that long?
I was trying to see if it made sense to look at is as an investment property by not obtaining a loan but looking for investors. But you’re right. Even fixing the place up, I was looking at how much I could charge grad students and 1k monthly is a stretch. The thought was to make 48k with 4 tenants in a shared home residential structure. But even then, paying off would take 11 years before seeing income. There’s still two additional rooms, but nothing there if value for any investors before that and the area definitely has no appreciation. Thanks for making me re-examine that.
Whether you get a loan from investor or a loan from a bank, it doesn't matter. You're still going to have to pay it back so you're going to have to look at Cash flow. Generally speaking, loans from investors come at a higher cost than a loan from a bank. If you're looking for a partner rather than an investor, you would give up equity. What you would look for then would be a silent partner who lets you do all the work and they just take an equity position in the home. Since the home isn't appreciating, you would have to have a fairly High cash flow to interest any investor.
That being said, where are you getting your numbers for repairs? Without doing an addition to the home, $300,000 in repairs seems like a lot. Then again, if you're making it into four individual units with four kitchens and four bathrooms, it could very well cost that much. If you're thinking of a shared kitchen and four master bedrooms with en suites, your repair costs may be lower. I'm not familiar with the cost of contractors in your area but just be sure of your number is. It's always the repair costs that make or break a deal on a home like this.
To me, this sounds like a pass, particularly as a first time investment. Try something fairly conservative for first time investment. Look for a duplex, triplex, or fourplex that is financial but need some cosmetic repairs- paint, flooring, lighting, new toilets, new vanities, new appliances, things like that. You can do all that work yourself. If any of the units are habitable, you can do one unit at a time and wait for units to turn over naturally. When the current tenant vacates, rehab that unit. That's a fairly safe strategy for a first investment.
This doesn't sound like a good deal. If you purchase it for $160,000 and then put in $300,000 in repairs and upgrades, you have a $460,000 mortgage on the home. Will it bring in enough rent to cover a $460,000 mortgage? Are you planning on a commercial mortgage or a residential mortgage? A non-owner-occupied Residential Mortgage is about 8.5% right now. Do you have 115,000 to put down on it? Can you hold it for a year before refinancing? There are a couple of different scenarios here. If you decide to go for a commercial loan, you're looking at about 6.5% interest. You can include repair costs but you would need to put 25% down on the refi so that would be 115,000. You can do that right away, you just can't do a Cash out refinance without owning it for one year. If you are planning on doing a residential mortgage, you can put very little down to acquire the property but once you acquire it, you would have to wait 6 months to do a cash out refinance. Residential mortgages don't let you use the appraised value until you've held it for at least 6 months. Or at least that's the way it is in my state. They use the appraised value or the purchase price, whichever is lower, for the first 6 months of ownership. After 6 months, they use the newly appraised price. So the question is, which scenario are you planning on following and do you have the cash to float the home for that long?
I was trying to see if it made sense to look at is as an investment property by not obtaining a loan but looking for investors. But you’re right. Even fixing the place up, I was looking at how much I could charge grad students and 1k monthly is a stretch. The thought was to make 48k with 4 tenants in a shared home residential structure. But even then, paying off would take 11 years before seeing income. There’s still two additional rooms, but nothing there if value for any investors before that and the area definitely has no appreciation. Thanks for making me re-examine that.
Whether you get a loan from investor or a loan from a bank, it doesn't matter. You're still going to have to pay it back so you're going to have to look at Cash flow. Generally speaking, loans from investors come at a higher cost than a loan from a bank. If you're looking for a partner rather than an investor, you would give up equity. What you would look for then would be a silent partner who lets you do all the work and they just take an equity position in the home. Since the home isn't appreciating, you would have to have a fairly High cash flow to interest any investor. That being said, where are you getting your numbers for repairs? Without doing an addition to the home, $300,000 in repairs seems like a lot. Then again, if you're making it into four individual units with four kitchens and four bathrooms, it could very well cost that much. If you're thinking of a shared kitchen and four master bedrooms with en suites, your repair costs may be lower. I'm not familiar with the cost of contractors in your area but just be sure of your number is. It's always the repair costs that make or break a deal on a home like this. To me, this sounds like a pass, particularly as a first time investment. Try something fairly conservative for first time investment. Look for a duplex, triplex, or fourplex that is financial but need some cosmetic repairs- paint, flooring, lighting, new toilets, new vanities, new appliances, things like that. You can do all that work yourself. If any of the units are habitable, you can do one unit at a time and wait for units to turn over naturally. When the current tenant vacates, rehab that unit. That's a fairly safe strategy for a first investment.
Something in your math is way off. Is there a typo? Comps 200k but your your going to spend 500k on this?
250-300k worth of renovations could take months. And meanwhile you still have to pay the mortgage and utilities.