BiggerPockets

This would be my first attempt at a deal, here are the numbers on this duplex: Top to bottom duplex with both units having 3 bedrooms 1 bathroom. Not that great of an area, one unit occupied and other is accepting applications from section 8 tenants.

Seller asking 65K, $7,500 down, 8% owner finance for 18 months. Gross rents are 1275 a month, (I have seen the current lease to confirm). I would refinance between a 12-18 months to a conventional.

I have already offered him 55K, 5k down, at 8%. Seller responds I am not negotiable if I will be acting as the lender. I would be willing to spend up to $63,750 with 5K down (following the 50 percent rule). Question: My biggest thing is I only have 5K to put down right now, not $7,500. So, I think my next offer would be 60K, 5k down and see what he says. I think I will need to offer him more than the 8% on his note for the lower down-payment though.

What do you guys think I should offer him to get this property with 5K down and definitely not a dime over 63,750?

Also, what things should I look out for when purchasing a property via owner finance, like I said, I am a newbie and want to jump on this deal very bad.

Please let me know your thoughts?

Thank you for the quick response Mike.

There is no work needed on the property. It is very difficult for me to gauge the value of this property. It is in a neighborhood of single family homes that recent sale have shown range from 56k to 80k, those SFR have about 500 less square footage and are much older homes. This duplex was built in 1994, relatively new for this block. I don't think I can compare a duplex to SFR and come to a conclusion.

I think it is safe to say this property isn't a great discount but definitely 10-20 percent below market value. That would leave me to another question, lets say you buy at market value but the property has great cash flow, would it still be a good investment?

Absolutely solid information. It goes without saying that the FMV is something I need to research more before I dive in. I have no problem passing up possible deals. I have seen those 15k houses and those aren't in this neighborhood. But, I will not be that person that convinces my own self that is worth more than it is. Those houses in this neighborhood were 3/1 and one was a 4/1 that the average was 70k recent sales, still doesn't convince me but I will be looking into it more.

I am looking at the duplex this weekend, and I will let everyone know how it goes.

I just spoke with a Realtor that someone referred me to and I explained to her this exact property and how I want to get properties at discounts following the 50 percent rule. I told her I am looking at low income areas to get these kinds of cash flows.

This Realtor went on to tell me I am pretty much retarded for using this strategy (50 percent rule). She claims, in the real world this doesn't work and that I will lose big time if I buy in low income areas even if there is great cash flow. I am completely discouraged after talking to this RE agent, she claimed that if it was that easy why aren't all the RE agents buying these properties? By the way, she is referring to this method in general not this particular property or area. She asked me what book I read to think I could get rich trying to invest in rental properties.

I pretty much told her I don't want to get rich, I just want part time investment, wow, what debbie downer.

Anyway, who is right here? I believe everyone on this forum, but sometimes after reading all of these posts I get the feeling the whole forum just might be one big get rich quick book and I am falling for it. (Again, not in this to get rich quick or even rich in general)

It seems to me that if the numbers make sense, and the property is managed right, it can only make money, right?

Oliver, don't let her discourage you, and don't be put off buying this property. Do do some research and figure out what properties are really worth in that area and what rents you will get. If nothing else, look at realtor.com. I suspect there are more local listing services that may work better right in your area. Find some candidates. Then get in your car and start driving.

If that duplex is similar to those $70K houses, I think you have a deal.

I've looked at KC several times, though not on the ground. I looked a bit more last night before making that posting. It sure looks to me like there's good potential area. Enough so that I just might make a field trip and reconsider my lack of enthusiasm for long-distance investments.

Have a look at "The Millionaire Real Estate Investor" by Gary Keller. As in Keller Williams real estate. He points out the lower priced houses are the sweet spot for rentals. Bill Bronchick, who runs our REIA, says "buy the WOB in a MOB by the BLOB". Worst house on the block in a middle priced or below neighborhood near the population centers. Don't be put off by one agent.

Get out on the ground and find some candidate areas. Drive them and research them. Then look for an agent that will help you find houses that meet your criteria. What you want to buy, not what they want to sell.

The easy response to her is that real estate agents aren't investors. They're brokers who match buyers to sellers. And get paid when a sale happens.

Oliver,

I have a small handful of SFH rentals in Omaha, and I'm sure you are experiencing the same lovely weather in KC that we are (a high of ZERO tomorrow!)... I just had to replace a furnace in one of my rentals for $2K yesterday. Poof, there goes my cashflow for the year on that property. I'm mentioning this because the property you buy may not appear to need any repairs now, but you never know when a bigger-ticket item will reach out and bite you.

Over the long haul, your operating expenses will likely average out to 45-50%. But any one property in any given year could have a couple of one-time capital expenditures that will completely blow up your planned cash outlay for the year.

So make sure you are giving yourself enough of a cash cushion just in case. If $5K is the max you have available (I wasn't sure if that was your max for the downpayment, or the max cash available total), be very cautious about plunking it all down on just the purchase.

You might consider wholesaling a couple properties and/or partnering with someone to generate some cash before acquiring a rental to give you more room for error.

She claims, in the real world this doesn't work and that I will lose big time if I buy in low income areas even if there is great cash flow.

If you have great cash flow, how is that losing big time? What is her suggestion - to buy a property with negative cash flow and win? Ridiculous!

I am completely discouraged after talking to this RE agent, she claimed that if it was that easy why aren't all the RE agents buying these properties?

No-one said that it is easy! It is not easy- IT IS HARD (from start to finish). That's why the RE agents aren't doing it.

Anyway, who is right here? I believe everyone on this forum, but sometimes after reading all of these posts I get the feeling the whole forum just might be one big get rich quick book and I am falling for it.

I'm surprised to hear you say that. If you are really understanding what you're reading, you'll see that the vast majority of people on this (or any other) real estate forum are newbies that haven't done a single deal. Of the small minority that have done a deal, an even smaller group have been able to quit their day job. Of those that have quit their day job, only a very small minority are even close to being "rich" (whatever that means). Not one of them got rich quick (unless they won the lotto), I can promise you that.

Mike

i agree. with this low amount of cash on hand, it might be risky getting a loan in 12-18 months.

Sounds like a decent deal just because the year of the building.

If its not in "that great" of a area, and your going to be stretching to get it, i'd probably pass.

I'll also tell u that I have NEVER met a realtor that knew what they were doing :) Most are pretty bad with real estate.

Most realtors or brokers are take the rs off the title and that is what they are. But, not because they want to be but because they do not know anything other than getting listings.

What you have to do like your other team members, i.e. attorney, CPA and so forth. Find those that invest in real estate, not those that try and sell it to you.

Go to your local real estate investment group and find those that invest and find out if they are realtors. Some are realtors just so that they can have ACCESS to MLS. They are out there, but you have to go and seek them because the true INVESTOR/REALTOR and if you notice I did not sat REALTOR/INVESTOR will not come and seek you they are making to much money and having to much fun.