House #1: Ready to Close

I got my closing date for House #1 today — it’s next Wednesday afternoon. This will be the first closing I’ve had with an investment property, and is sure to be a lot easier than closing on my first property, my primary residence. Because I will be paying cash for the house, I won’t have to deal with all the loan issues, such as an appraisal, holding taxes/insurance/etc in escrow, transfer of fee between banks, etc. Basically, I’ve been told to show up with certified funds funds for the price of the property (plus some extra for closing costs) and my driver’s license. Nice!

Unfortunately, I still have some open questions about this property:

• I haven’t yet decided how to hold title. From an asset protection standpoint, the right thing to do is to hold title in my company’s name. And because I won’t be getting bank financing on this property, there is nobody who should care how I hold title (when getting financing, banks generally want to see title held in the name of the borrower, not a company). But I’m still not certain if there would be implications around refinancing if I did this and it turns out I decide to hold and refinance the property. I need to talk to my bank about this.
• I haven’t found contractors to do the work on this property as of yet. I received most of my contractor bids back, but unfortunately the contractors I would want to work with all came in too high (they are upscale remodeling companies) and the contractors that came in reasonably priced didn’t give me enough confidence in their ability to execute. Now that I have a bit better idea of what I’m looking for in contractors (include the price range of various types of contractors), I think I will do a better job of screening. But unfortunately I’m back to square one with finding contractors for this property. I’ll be doing more walk-throughs and getting more bids early next week.
• I’m waffling about what degree of rehab I want to do on this property if I plan to try to resell. Considering the price point of the property (low $100Ks after rehab), I think my plans might have called for over-improvement. Stepping back, I think I need to do less work to potentially generate greater profit. I’m highly considering scrapping the idea of finishing out the basement, replacing the cabinets (I’ll refinish instead), adding recessed lighting, etc. While these are nice features, I don’t believe they are must-have features at this price point, and I don’t think they will ultimately affect a buyer’s decision to a large degree. So, I’d rather save another $8-10K by not doing this work, and apply a small part of the savings to other features that will make a bigger difference to the buyer.
• The big thing is that I haven’t yet decided if I will be reselling or renting this property. Much of this decision goes back to the points above about cost of rehab and finding contractors, but ultimately this decision needs to be made before I finalize either my contractor bids or my scope of work. I’ll review the recent comps, run the numbers again, and make a final sell/rent decision by Monday, at which point I’ll go full-steam ahead finalizing my scope of work and finding contractors.

In the future, I need to have a lot of this stuff figured out before I buy the property; I’m actually a little bit annoyed at myself for still having these open questions a week before closing. But, considering this is my first investment, I’m not overly concerned about the fact that I’m “over analyzing” these things. Luckily, I believe this property will work either as a flip or a rental, so my risk is relatively low in not making that decision yet. Plus, by paying all cash for the property, my holding costs are very much reduced, and other than tying up a bunch of cash, there is little risk in taking a few extra days to finalize my exit strategy and my plan.

Hopefully I’ll have more to say by next Wednesday on how I plan to proceed…