What Would You Do With This Property?

I am a new member of this site and a new real estate investor. I think?

I live in New Orleans and just bought a double. I was renting in the neighborhood in one of the hottest renovation markets in this town and suddenly realized that property values were appreciating at a very unusually high rate. So I bought a book and then immediately bought a house - a double. (Not very much training buts tons of enthusiasm)

I am happy with the purchase, but not so much with the financing and wanted to get some feedback on what some of you might do with this.

Property:
Double (Creole Cottage - in a historic neighborhood)-
2 one bedroom apartments (760 sq feet per side) with a very large backyard (unique to this area)

The condition is really good. I've basically put 2,000 dollars into some structural repairs and am finished. I'm doing all the work myself with the help of a contractor friend. This place is ready to rent and is in great shape.

Appraised value: 150k
I bought it for 142k

I live in one side and was figuring this as a part of how the financing would work, ie, I always expected to pay for half of it. I needed a place to live And now I've got some tax deductions to work with.

My financing was horrible. I'm self employed for less than two years and I was looking for 100% financing, which I got at the following terms.

1st mortgage 113k at 7% (that I like)
2nd mortgage 28k at 11% (sickens me)

Total payments come up to 1,300 per month which includes taxes and insurance. At 650 rental (current market price) I'm paying about 750 a month to keep the place going. Which is just a hundred bucks more a month than what I was renting for.

My original plan was to live here for two years and then move out and keep them forever as income properties. But if I move out, then I have a negative cash flow.

The beast is the 2nd mortgage and this was a longwinded way of asking what my options might be for erasing that guy, via appreciation (I have 400sq ft of attic space that could cheaply be converted into a second story and add about 30 grand to the value), or refinancing (remember I bought this with 100% financing so no equity).

The other option is to convert to a single family residence, which is the trend in this historic neighborhood in which the selling prices are ranging from 230k - 300k, which depending on revovation costs, might be the way to go to really cash this thing out.

I'm still too new to this to really understand what I've done and what my real options are.

I should state that my goals are to ultimately own between 10-20 rental units and to property manage them myself. Perhaps some rehabbing and other investments along the way, but I really want an income stream. I'm already self employed and in a unique situation where I control a lot of my time. Which is why I want to invest that time learning and acting quickly.









grin

Comments(1)

  • bbuono19th August, 2004

    Hi,

    Well, this seems like a classic case of putting the cart before the horse. In the future, a better cash flow plan for the property might be devised before the purchase. Starting out, I'd try never to absorb a negative cash flow. Rehabing the property sounds good but it is a risk as it's more money out of your pocket. Perhaps if you can secure a buyer prior to reconstruction, you can assure yourself of a profit when you're done. You also might think about refinancing the entire property with a bank or investor that can offer a better interest rate. If you're gonna rent, cashflow is king. Really concentrate on getting the numbers in your favor before the deal next time.
    Oh, last minute thought, since you're new at this, perhaps developing a relationship with a quialified and trusted real estate buyers broker might be of some assistance in this and future dealings. Good one can be very creative and will look out for your interests if you can prove to them your sincere about more business. More importantly , that you can make the broker and you some money in the future.

    Good Luck!!

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