Adventures in Investment Properties- My Personal Journey

My husband and I just bought our first two unit rental/investment property and have spent the last two months remodeling it. It was actually a property that I showed to one of my clients, Larry, who is way more savvy than I when it comes to owning rentals. He and his wife were smart and started buying places when they were young (they still are) and have owned and sold several over the years. This Fannie Mae owned up and down duplex, had a price reduction of $20,000 the day I showed it to him. What he and I both liked about it was the price, its great potential and location. A combination of timing issues and lender mishap prevented him from purchasing this particular place, so when he said he wasn’t going to get it, I told him if he didn’t I would.

Buying a Foreclosure

Many bank lender and Fannie Mae owned properties can have great prices, but have added paperwork and rules to follow. There were addendums to sign that trumped the regular Colorado contracts. The acceptance came quickly by phone, but a week later in writing, with changes. Not for the faint of heart. It was a “do it our way or the highway” scenario which I would not recommend trying alone without professional Realtor representation. Turned out well and we closed on time. They even paid $3000 toward our closing costs and I received a commission as Buyer Agent. Not bad! I have tried to buy foreclosures at the Public Trustee’s sale, but it never worked out. I’ll tell you why, if you want to ask me.

Nuances of Financing

Financing an investment property is different than for your primary residence. You can put as little as 10% down, but 20-25% will get you the better interest rates and have the property produce income earlier. We put 25% down and got 6.625 for 30 years. We chose Frances Wehner with CTX, who has been a trusted lender of mine and my clients’ for years. They are a large national company who can get the deal closed in today’s mortgage lending climate. According to Frances, there are several sources for your downpayment like Home Equity Line of Credit, borrowing from your 401K, gifts from parents/family, winning the lotto (just kidding). Check with your tax/financial advisor. So yes, you may have another mortgage to pay, but now you’ll have someone paying rent monthly to help make those payments. You may need to escrow your property taxes and insurance as well. You can do it yourself, but a lender will charge you extra up front.

Insurance Issues

Insurance was way more problematic than I thought and you have to have it upon closing or you can’t get your loan. My own company, who we have both our auto and homeowners with, told me they wouldn’t provide any coverage unless we already had tenants in place with a signed one year lease. How can we do that when we don’t even own the place yet? And foreclosure situation, Fannie Mae owned… Hello! No one living there in quite a while. CTX recommended another company and they were surprisingly inexpensive and didn’t require a signed lease.

Less than Stellar Condition of the Property

The exterior needed painting, the sidewalk was crumbly, original windows and doors needed replacing, the front steps were leaning to one side, every kind of rock and gravel, but no grass (the previous owners must have worked for Pioneer Sand and Rock). Thank God the roof was in good condition. I know what you’re thinking,” This was a good deal??” Well, yes, if you can see the potential and visualize all the changes that could be made. Considering it also had a detached two car garage (storage or parking- think extra $$) and a fenced yard with alley access and Denver’s strong rental market, you bet.

This property could definitely be called a true fixer upper. It had next to nothing left inside, after it went through the foreclosure process. No cabinets or appliances, bathrooms in disrepair, cruddy stinky carpet, badly stained wood floors. Built in 1953, it was in original condition, no remodeling to speak of over the years and had been designed as a rental, probably from the beginning. That saved us getting the zoning designation from the county changed. The county had it listed as a two-three family dwelling! Where was the third family living? A bit scary.

As a Licensed Residential Contractor specializing in the fix and flip remodel, I had to fight the urge to put in my usual upgraded finishes. Because this is a buy and hold market right now in the Denver Metro area, I had to think long term, lasting, durable, nearly indestructible materials, not to mention staying within some sort of budget. Okay, I really didn’t have one. (Look for my husband’s comments when he sees this part. He’s a CFO and it won’t be complimentary.)

Next- The remodel process and pictures.

Written by Ann Connelly - Visit Website Sphere: Related Content