Are times achanging?

Question

So today I'm poking around on the MLS....what do I find?? 
Witnhin 15 minutes I locate 3 multifamilies that are priced almost to support the 2% rule...a few single fams priced alright...

And one single family that...get this...( i had to run down and check it out asap when I saw it)...

ARV of 160....repairs at about 55....it's an REO and the bank prices it at...drumroll please....49K!!! I couldn't believe it. The bank prices right. Mistake...agent error...or the bank comes to its senses?? Who knows...but my offer is in.

Loving this downward market.

Brendan O'Brien · Answer

I have thought that the quality of tenants would also improve as a result of the mortgage crunch.  Hoping that some people who would have gotten approved for a mortgage a while back, are no longer being approved.  They would thus remain (or become) renters.

Does this seem to be happening?

RICARDO RUIZ · Answer

Its still very hard to find anything in So. Cal. that will cash flow...I hope something happens over here... I am on of those guys that would die if I had to pay a guy 45 dollars just to drive out and then charge again to unclog the drain.

Michael Rossi · Answer

mfd,

Just divide the gross rents by .02 (2 percent) to get the maximum acquisition cost.  So, 3,600 / .02 =  $180,000 maximum acquisition cost.

As an alternative, you can multiply the gross rents by 50, that is the same as dividing by .02.

So, with the numbers you gave, $180,000 minus repairs would be the most you could pay for the property.  Of course, you still need to do a cash flow analysis and all the other due diligence for the property.

Good Luck,

Mike

Robert Granara · Answer

Mike,

how do i determine the 2% rule on these numbers?

$250K acquisition cost of 3 units, maybe $2K each for minor repairs and paint...

rents of $1200 each unit...$3600 total...(maybe even $1350 each unit)

need any more #'s???

Michael Rossi · Answer

Ultimatetouch,

The 2% rule is simply a screening tool that says that rentals need to have gross rents of at least 2% of the acquisition cost (purchase price + rehab) if you want them to cash flow properly.

Mike

Lynn Z · Answer

coming to the end of a 2 month vacancy.  Many tenants with dogs but not necessarily socialized dogs.  No good credit and mostly bad credit and many don't seem aware of the fact that their credit is bad.   But where are the people?  Finally rented to a couple that hates the noise in their complex and want to move in closer.  Two showings and still gotta wait a week for the security deposit.

Slim pickings.  Lots of "for rent" signs and we're right on the start of  a new semester and no students looking.  This is when you're glad you had pad in the house account and a partner to share the pain.

N/A N/A · Answer

The properties in Houston are fantastic! Any investors want some stuff down here let me know...I have a lot...

N/A N/A · Answer

What is the 2% rule?

N/A N/A · Answer

Got to say thats the one thing I love about the Indianapolis market.  I am finding absolutely ridiculous deals, ESPECIALLY with the REOs.  There are just so many foreclosures here banks will take about anything to get them off their hands.  Its pretty nice, especially on 2-4 unit properties, because say on a double, I can buy it, redo all mechanicals, exterior, windows, etc, get it filled--and still make good money selling it to investors where one side basically covers the payment.

Gotta love this market!

Robert Granara · Answer

yep....here too... im Mass...im looking at a 3 decker for 200K...rents of 1350 each floor possible

this is a house that sold for 450K 2-3 yrs ago...i cant believe it

every day i check the price changes on the MLS for my market and the prices are falling each and every day...