What should I do ( FIRST POST)

[Bryan Nwokem]

Hey Y'all, I had a question on mind. So i found a home, its listed above $400,000 Duplex in the Sunny side Place area, if you are from houston you know gentrification is happening around this are. The home has been on market for a few months, almost a year. I want to offer in the ball park of $370,00o to test waters have them meet me in the middle around 390,000 with a fixed rate 30 year 6.75%. The Mortgage would be around $3587/ month including insurance, taxes, Mortage insurance. Its a 2 unit , 3 bed 2 bath build in both units. 

I am a bit worried about the investment as it is my first property any advice?

[Andrew Syrios]

What would such a property rent for? Will it cash flow? Those are two really important questions.

If it's been on the market for a while at $400,000, it probably hasn't gotten any built-in equity at $390,000. (Although this is a sort of frozen market with substantially less buying activity right now.) I always want to have some equity upon purchase though and it doesn't sound like you will have that. So it better cash flow, which with a $3587/month payment, I think is quite unlikely. 

[V.G Jason]

Quote from @Bryan Nwokem:

Hey Y'all, I had a question on mind. So i found a home, its listed above $400,000 Duplex in the Sunny side Place area, if you are from houston you know gentrification is happening around this are. The home has been on market for a few months, almost a year. I want to offer in the ball park of $370,00o to test waters have them meet me in the middle around 390,000 with a fixed rate 30 year 6.75%. The Mortgage would be around $3587/ month including insurance, taxes, Mortage insurance. Its a 2 unit , 3 bed 2 bath build in both units. 

I am a bit worried about the investment as it is my first property any advice?

That's a bad place to invest. "Gentrification" talk has been in that area since the early and mid 1990s-- it's been pathetic.

You won't get quality tenants, I am not sure you'll be able to rent that for anywhere near the mortgage. For $400k, there's plenty of better options(maybe not in Houston). In greater houston, look at cypress, katy, etc.

[Henry Clark]

That’s a great location. I used to live in that area.  I love nasty.

Where did you get your money?  Your spending it to easily. Not considering risk reward.  

Want you to make an offer on this house.  Work backwards.  What can you rent it for? Consider both PI and capex.  Make sure the numbers are Cashflow positive.  Your play is appreciation.  This is hard to do if you own the best house in the neighborhood.  You want to buy the worst house.  

You're about to spend $50,000 on a small part of your REI education. Recommend you take the money and host a big party at Cadillac Bar and Grill. Have some fun if you're going to blow $50,000.

  You’re in Texas.  There are far easier ways with far less risk to double your money in 12 months in Texas.  Keep reading Bigger pockets.  Deposit your money and make 5% interest. Start small.  Take $10,000 and in the next 6 months make $60,000.  Then start to scale.  

All of us have to fail to learn.    

Start small and Make Your Big Mistakes Early.

[Darius Wade]

Quote from @Bryan Nwokem:

Quote from @Bob Stevens:

Quote from @Bryan Nwokem:

Hey Y'all, I had a question on mind. So i found a home, its listed above $400,000 Duplex in the Sunny side Place area, if you are from houston you know gentrification is happening around this are. The home has been on market for a few months, almost a year. I want to offer in the ball park of $370,00o to test waters have them meet me in the middle around 390,000 with a fixed rate 30 year 6.75%. The Mortgage would be around $3587/ month including insurance, taxes, Mortage insurance. Its a 2 unit , 3 bed 2 bath build in both units. 

I am a bit worried about the investment as it is my first property any advice?

 Whats the question? We have no idea if this is a good deal or not. What will the rent be?  Also, you are offering way too much, not sold for a year, ok it has issues.  You should not offer anything you are not ready. Show it to someone doing deals, let them look at it. Its obviously not a good deal as its not sold. What do the comps look like? KNOW YOUR NUMBERS, that's all that matters, 

Good luck

Thank you for the Response Bob. It is actually a new build, built in 2023. Comps are looking interest because the average is being dragged down with all the older houses around that zipcode. Looking around $1650/month rent

 With market rents at $1,650, the deal would not make since. Going into the deal you are already expecting to lose money. The other issue is that as a new build you are already at the full value of the home meaning there is no room for forced appreciation. I would suggest passing on this one and looking for one that has a better cap rate and can be forcibly appreciated through renovations.  Hope this helps and best of luck to you happy you're getting into the real estate game.

[Henry Clark]

No matter what you do.   Use this as a learning experience.  Take the concepts people noted and work backwards into an offer number.  
1.  Make sure you have a steady job.

2.  Take your number and make an offer $25,000 lower than your new Cashflow number.  Put a 3 day window on it.

3.  If they come back check with your lender on the following.  Tell the owners they are to high.  Raise your offer to your revised cash flow number. Tell them you will pay that but you want $100,000 non interest bearing loan for 5 years.  At which time you will pay them off.  They take 2nd position though behind your lender.  You will add them as an additional insured in your insurance.  Will pay a penalty of $x,xxx if insurance or property taxes are not paid timely.  Subject to inspection.  

4.  After they don’t accept your offer take a walk.  You don’t know their situation. They might accept.  

If you don’t have to move out of the parent house recommend since you’re in Texas look at property Tax sales.   Only do land and not houses.  You will understand.  Don’t go to auctions.  Make offers in off list properties.  Way below what they are asking.  Learn the pitfalls of these sales so you can look for them.  With your $70,000 want you to buy 5 properties.  Use the $20,000 for clean up.  Learn to drive a

Skidsteer and a

Chainsaw.  

Get to know a commercial realtor in your area.  Then make a post and

Let’s go over the type of properties your looking for and how to value add them.  

[Randall Alan]

Quote from @Bryan Nwokem:

Hey Y'all, I had a question on mind. So i found a home, its listed above $400,000 Duplex in the Sunny side Place area, if you are from houston you know gentrification is happening around this are. The home has been on market for a few months, almost a year. I want to offer in the ball park of $370,00o to test waters have them meet me in the middle around 390,000 with a fixed rate 30 year 6.75%. The Mortgage would be around $3587/ month including insurance, taxes, Mortage insurance. Its a 2 unit , 3 bed 2 bath build in both units. 

I am a bit worried about the investment as it is my first property any advice?

@Bryan Nwokem

What’s missing from your post is what you can rent your units for, as well as the size of the units.  Without the revenue figure we can’t work out your return on investment, and thus whether the purchase is good or bad.  And the size of the units goes towards value as well, relative to other like properties in the area.  

One strong word of caution:  your property taxes will reset at some point after you buy this property. If your seller paid $150,000 for it, and you are paying $400,000 for it, you are most likely looking at your taxes doubling when your county reassesses the property for what you paid for it.  An extra $1500-$2500 in property taxes a year ($200-$300 additional expenses a month) can make a significant difference on your profitability numbers… So be sure to factor in your future taxes, and not your present taxes.  Your county property appraiser can help you estimate what those might be, as well as when the taxes would reset.

I would also encourage you to look at other recent sales in the area, and compare what others have been paying for similar properties to what you were paying for yours. My gut tells me that the unit is priced too high. One of the most obvious reasons that would be, even with me not knowing much about it, is that it has been sitting on the market with no one buying it. If it were a great deal, any other skilled investors would have already snapped it up.  This is the exact same thing your lender will do with regards to valuing the property. They will order an appraisal… but you can do a ‘seat of the pants’ appraisal yourself by looking at other nearby properties that are duplexes of similar size.  I would encourage you to look at the dollars per square foot, that the other property sold for and compare it to your property’s dollars per square foot cost.

Otherwise, my general feedback is two-fold… the signals we are getting from the Fed are that they are likely pausing rate hikes.  Mortgage rates have already shown signs of easing.  So buying now is likely locking in a higher rate than what you will see in 6 months to a year.   To refinance will cost you $3000-$5,000 if I had to guess.  If you made $200/door/month - your first year’s income will go to refi costs when you want refi when rates are in the 5’s or 4’s.  

I also encourage people to compare their rate of return to alternate uses for their money.  Right now you can get 5% on a high interest savings account while you wait for the market to settle down a little bit more.  You don’t mention what you’re putting down on the property, but if it was 20% of the 400,000, that would be about $80,000 down.  The $80,000 would make you $4000 a year just sitting in the bank while you wait for the market to settle - that return is 100% safe and guaranteed with no tenant issues or repair expenses.  That is $333 a month. I would encourage you to compare that rate of return with the income you may be making from the property and then factor in the safety of the savings account versus the unknowns of repairs and maintenance of your purchase.

If your monthly return on investment was $400 on the property, and you can make $333 just letting your money sit, I’m not sure I would make the investment in a high interest rate environment, factoring in the fact that you will probably want to refi your property within the first two years of owning it at a high interest rate.

I think I would ask myself what is the advantage of buying now, versus buying a year from now. Appreciation would be one… If you had 3% appreciation that would be a $12,000 upside in a year… Not that you would be going to sell it then, necessarily. The disadvantages would be the high interest rate, the need to refinance, and the lower ROI given the expensive cost of the money, resulting in a lower amount of profit each month.

Then, there is your personal line in the sand, where you have to make the judgment call of “is the investment worth it”?  For me, netting $100 per door per month isn’t worth the time or the risk involved. We personally look for around $300 per door per month at a minimum. That’s pretty hard to find right now, which is why we aren’t really investing in new properties at the moment.  We are always looking, buyer seldom finding what we are looking for value and profitability-wise. 

I hope I at least gave you some food for thought.

All the best.

Randy

[Emerich Esqueda]

Bryan,  the most important thing is to ensure you have positive cash flow and enough to weather any vacancy or large repairs.  I coach new investors as part of my real estate agent services.

[Mike Klarman]

So, unless you have at least 150k in liquidity I wouldn't even think about it.  You'd have to put up at least 20% of the 390k, pay closing costs, insurance, transfer tax.  As a first ever deal, this is pretty big.

[Mario Gomez]

Run the numbers on the deal and see what it says bro, if you cashflow and etc

[Jason Mag]

Hey  Bryan, I realize this post is a little behind the timeline, but I hadn't seen it mentioned anywhere.. When you're looking at new builds make sure you check to see if they have a preferred/internal lender and/or an interest rate buydown available, which can really change the terms of the deal. 3 months ago some of the new construction companies in my area were offering permanent 3.5%, 30-year interest rates and up to $80k (10%) off of list for using their lenders. Even today new construction is still in a great place as they try to attract buyers and get properties off of their books, their buying terms with their lenders could immediately take this deal from not so great to a slam dunk. Also, keep you're head up! You're on a great track with creative ideas like this one.

[Bob Stevens]

Quote from @Bryan Nwokem:

Hey Y'all, I had a question on mind. So i found a home, its listed above $400,000 Duplex in the Sunny side Place area, if you are from houston you know gentrification is happening around this are. The home has been on market for a few months, almost a year. I want to offer in the ball park of $370,00o to test waters have them meet me in the middle around 390,000 with a fixed rate 30 year 6.75%. The Mortgage would be around $3587/ month including insurance, taxes, Mortage insurance. Its a 2 unit , 3 bed 2 bath build in both units. 

I am a bit worried about the investment as it is my first property any advice?

 YES your offer was terrible, WAY too high. Sitting for a year, why? Did you walk it ? How much is the reno? I assume you have not even walked it, so how can you make an offer? Why would you offer basically full price for a property that has been sitting for a year? 

PLEASE get to a RE meeting and learn. If this is sitting for a year something is wrong. Do you think you just happen to stumble across a great deal? Get to a meet, 

[Bob Stevens]

Quote from @V.G Jason:

Quote from @Bryan Nwokem:

Hey Y'all, I had a question on mind. So i found a home, its listed above $400,000 Duplex in the Sunny side Place area, if you are from houston you know gentrification is happening around this are. The home has been on market for a few months, almost a year. I want to offer in the ball park of $370,00o to test waters have them meet me in the middle around 390,000 with a fixed rate 30 year 6.75%. The Mortgage would be around $3587/ month including insurance, taxes, Mortage insurance. Its a 2 unit , 3 bed 2 bath build in both units. 

I am a bit worried about the investment as it is my first property any advice?

That's a bad place to invest. "Gentrification" talk has been in that area since the early and mid 1990s-- it's been pathetic.

You won't get quality tenants, I am not sure you'll be able to rent that for anywhere near the mortgage. For $400k, there's plenty of better options(maybe not in Houston). In greater houston, look at cypress, katy, etc.

 RE is ALL about numbers, If this can be all in 300k and rents for 3500ish, well not so bad. I like bad areas, there is something wrong with this prop, I assume its way overpriced, Not a chance in hell this guy found a great deal :) 

[Wade Wisner]

I agree with other posters that this is a pretty large deal for a 1st one.  Also, you have a lot of work to do to determine if this is a money maker or a dog!!  Complete proforma with assumptions for all income and expenses.  Make sure that you include a reasonable vacancy rate and management fee as your time should not be free in this.  If your returns on investment are not in the range of 6% or higher for no debt and higher if leveraged keep looking.  Also  if the property has been on the market for that long, I would be wanting to know WHY.  If is still looked like a decent deal my initial offer would be quite a bit lower to start and slow to come up.  Good luck and be very careful!! There is a lot that can go wrong with this.

[Bryan Nwokem]

I took everyone's advice as well as research on my own end. I ended up not even offering because after looking into the numbers, like most said, it simply did not make sense. Thank you all for even responding. God bless you all

[James Hodgson]

Quote from @Bryan Nwokem:

I took everyone's advice as well as research on my own end. I ended up not even offering because after looking into the numbers, like most said, it simply did not make sense. Thank you all for even responding. God bless you all

 Extremely smart to be patient! After 6 months I found my first house hack duplex at 325k, 3.5% interest. One unit nearly covers the mortgage. Keep looking and researching your market, the right deal will come and you will know it when it does.

[Wale Lawal]

@Bryan Nwokem

Well done on your discovery of a possible rental home! It's fantastic that you're researching and thinking through a number of things before putting in an offer. Here are some things to think about and suggestions for your case:

Make sure the purchase price is in line with Sunny Side Place's current market circumstances by doing a comprehensive market investigation. Examine similar sales, rental prices, and neighborhood patterns as a whole.

It seems sense that you would want to make an offer to gauge interest before trying to work things out in the middle. Prepare a justification for your offer that includes market data and any necessary repairs or enhancements.

Even if stability may be obtained with a fixed-rate 30-year mortgage, it's important to compare financing conditions. Examine many lenders and take into account variables like as interest rates, closing expenses, and any penalties for early repayment.

Determine the property's possible cash flow. Take into account other costs such as property management, upkeep, and vacancy rates in addition to the mortgage, insurance, and taxes. Make sure there is a positive cash flow from the property.

Make sure your escape plan is well-defined. It's important to know your exit strategy whether you want to sell the property quickly, use the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) method, or keep onto it for a long time.

Think about consulting a property inspector, real estate agent in the area, or even a mentor with knowledge of the Houston real estate market for advice. Their advice might be quite helpful to you when you make your first investment.

Note that doing extensive research is essential when investing in real estate. Spend some time examining the property, learning about the market, and making sure the investment fits into your overall financial plan. 

If you have any specific concerns or questions, feel free to provide more details, and I'll do my best to assist you!

[Michael Smythe]

@Bryan Nwokem your initial offer should be so low you are embarrassed to make it!

[Bob Stevens]

Quote from @Bryan Nwokem:

Quote from @Bob Stevens:

Quote from @Bryan Nwokem:

Hey Y'all, I had a question on mind. So i found a home, its listed above $400,000 Duplex in the Sunny side Place area, if you are from houston you know gentrification is happening around this are. The home has been on market for a few months, almost a year. I want to offer in the ball park of $370,00o to test waters have them meet me in the middle around 390,000 with a fixed rate 30 year 6.75%. The Mortgage would be around $3587/ month including insurance, taxes, Mortage insurance. Its a 2 unit , 3 bed 2 bath build in both units. 

I am a bit worried about the investment as it is my first property any advice?

 Whats the question? We have no idea if this is a good deal or not. What will the rent be?  Also, you are offering way too much, not sold for a year, ok it has issues.  You should not offer anything you are not ready. Show it to someone doing deals, let them look at it. Its obviously not a good deal as its not sold. What do the comps look like? KNOW YOUR NUMBERS, that's all that matters, 

Good luck

Thank you for the Response Bob. It is actually a new build, built in 2023. Comps are looking interest because the average is being dragged down with all the older houses around that zipcode. Looking around $1650/month rent

 1600 in rent with a 400k PP ? IF SO that is beyond terrible. This is a terrible property, there is a reason its not sold, MOVE ON,  

[Melanie P.]

@Mike Klarman So by your account in just a few months you've given away $100,000 in profits on "sure thing" flips to posters you met on BiggerPockets? Why not just fund the flips yourself and put the money in your pocket? Are you just a super generous guy or what? Like the most generous guy in the world maybe?