Deal 3: Harper’s Home

The Property: A 2200+ sq foot single family, 4 bedroom, 2.5 bathroom house in Phoenix, AZ
 
Closing Date: August 1st, 2019
 
My Mindset: I was living in my quadruplex and was ready to move on. I was ready to be in a better part of town and create some distance with my tenants.  Also, my dog Harper needed a bigger backyard, a neighborhood that was better for walks, and we both were wanting more space than the 500 sq ft unit we were in.

Not going to lie, I was not looking for this much space but this is where I thought the best deal was!

How I Found It: I found it on the MLS. It was originally out of my price range and had driven by it while looking at another property that I wanted. When the property I wanted was not budging on moving up the date of having a family member move out I raised my price range a bit it and this one now worked. 

The Timeline: I was getting ready for my month long trip to Asia and emailed my realtor on June 7th to just let him know that I'd be leaving on June 24th and coming back July 24th and wanted to start looking when I got back. Welp, the house hunt began on June 9th and I put in an offer on June 12th...

The Negotiation: The house was listed for 260k and had been on the market for 80+ days. The owners lived out of state and had never lived in the house and it had been used as a rental for 17 years. The house was in rough condition - like, dog pee stains on the tile. 

Properties in the area with a comparable size were being sold for 325k - 350k, no pee stains though. I offered $255k and the seller paying 2% toward closing costs so I would have more cash available for the rehab. They waited past the deadline but agreed with no counter. 

Next came the inspection and the property was in even worse condition than I thought as a window was already broken, there were active termites, and the porch roof needed to be replaced. I asked for another 1% and that was accepted. I eventually had to give that back to complete repairs around the house which I was okay with as I would have preferred less on the rehab than a lower interest rate.
 
The Financing: I put down 5% as I was an owner occupant and wanted to hold onto as much cash as possible. My realtor's lender was offering me a 4.5% interest rate. I found a cheaper rate and they offered me a 1% lender credit and would reduced my rate to 4.375% and the additional money going to closing cost! Again, trying to keep as much cash as I can. 

I used up all the seller credit I could and was only able to buy down the rate and got it at 4.125%
 
The Plan Moving Forward: I pretty much have to redo everything. This mean I'll have to paint, redo the floors, bathrooms, kitchen counters, some windows. I'll be waiting until the start of 2020 to begin the rehab. This will allow me time to figure out what I want and work on getting my minimum spends for the Southwest companion pass.  After that I'll move out and turn it into a rental. Houses in the area at this size can rent for $2200 - $2500 while the mortgage is $1500.

Why I did it: The house was in bad condition but with A LOT of work I would be able to create a good amount of equity. The perfect live in flip for me! 
 
What I learned:

• When making a down payment all the money has to come from you. 
• If the seller doesn’t respond you sign a CURE to say they are in breach of contract and you can get your earnest money back. 
• People often lack the vision for ugly houses or are lazy. They would rather pay for a $350k finished house than $255 and $20k-$40k in rehab and get all the equity themselves. It's like they want to pay interest on that extra 50,000 for no reason! ​
• You can only use a lender credit for specific things.