My REO purchase - Will you be onboard

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My REO purchase - Will you be onboard

Jack Srimani
Real Estate Investor · roscoe, IL · Member since 2009 · 131 posts · 8 votes

Hi,
Just few moments back I posted a REO question where I got very sound advises. I would like to share with you another thing about this which is slightly nagging me due to my first REO(investment too). This is a duplex which was bought five years back for 55k. Right now at a REO status it is at 25. I have not yet got the inspection of the heating, plumbing etc. However otherwise there are few things to rehab like the kitchen appliances, one room carpet and some paintings. I was told that it was an investment property for some investor that went bust. Now my question to you is that would you buy such a property at a good price knowing that previous investor went bust. In other words my fear is if I cannot rent these two units then I have to pay everything from my pocket which will be a tough sitution for me. How would you research if these will rent and bring money. I know that in a previous post I was advised to look around for rent signs in the neighbourhood. Is there any other way I can research here to have some idea that the duplexes will rent. They are in decent (I would say good) condition after taking care of all the list of issues that is found out in inspection. Your advise will be a big help to my first venture in first realty investment. I hate to spooked in my first try.
Thanks.

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Sharad M.Pro Member
Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
16y

Jack,

All the properties in foreclosure right now were owned by owner-occupant or an investor at some point. Just because they went bust, doesn't necessarily mean that it's a bad deal. The investor in this case could have underestimated the operating expenses, didn't have any reserves and went bust with a big expense.

As far as getting more information on the rental market is concerned, look for for-rent signs, call craigslist ad and ask the property manager or landlord how long has the rental place been on market.

But just because someone else went bust doesn't necessarily mean it's a bad investment. The investment could have been in the hands on a poor investor.

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  • Account Closed
    Real Estate Investor · Austin, TX · Member since 2009 · 66 posts · 12 votes
    16y

    if you have access, you can have a realtor run a CMA for you which will show the comps in the neighborhood for rental/lease rates. The fact that somebody went bust is enough to be aware of, but does not necessarily mean it is a bad investment for you (who knows what their situation/finance terms were like?)

    Get your inspection done, call on the for rent signs and go visit a couple places to see how yours compares, then you can make a more accurate estimate of the rents you can expect to receive. Getting to know the neighborhood is critical to know what you can expect.

    If you do your homework on the area, use the principles that are frequently discussed here regarding how to properly estimate real costs for rentals, then you should be in a good position to determine if it really is a good deal or not. i would recommend that you do your homework and post your findings here for a sanity check.

    jeff

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  • Sharad M.Pro Member
    Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
    16y

    Jack,

    All the properties in foreclosure right now were owned by owner-occupant or an investor at some point. Just because they went bust, doesn't necessarily mean that it's a bad deal. The investor in this case could have underestimated the operating expenses, didn't have any reserves and went bust with a big expense.

    As far as getting more information on the rental market is concerned, look for for-rent signs, call craigslist ad and ask the property manager or landlord how long has the rental place been on market.

    But just because someone else went bust doesn't necessarily mean it's a bad investment. The investment could have been in the hands on a poor investor.

    Podcast Guest on Show #155
    2Reply
  • Tom C
    Real Estate Investor · OH · Member since 2008 · 1k+ posts · 86 votes
    16y

    I was a little concerned when I bought my first duplex also. It's not in the best neighborhood, compared to my SFR's and frankly it's a duplex. A lot of people would prefer not to live right next to someone. But then I considered, the price I got for it $17,500 and what my current homes are renting for and how those are in high demand.

    Also, a huge plus for this duplex is that both sides are 3 bedroom. There are many family's in need of 3 bed rentals, but cannot necessarily afford the rent of a 3 bedroom house. My 3 bedroom homes rent for $600 a month. The 3 bed duplex, $435. That makes it attractive to a larger family.

    Consider what the last owner paid for it and most likely were stuck with that note to pay on. At least you are getting it at a much better price and you can allow one side to sit empty for a month or so and still not take a big hit.

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  • Kevin C.
    Investor · McKinney, TX · Member since 2009 · 405 posts · 160 votes
    16y
    Originally posted by Jack Srimani:
    Hi,
    ... In other words my fear is if I cannot rent these two units then I have to pay everything from my pocket which will be a tough sitution for me.

    If you don't have enough cash in reserve (after purchase) to cover at least a few months of vacancies and a fair amount of unexpected repairs then you should not be buying at this time.

    Without reasonable cash reserves you'll be a vacancy or repair from foreclosure.

    Build up your reserves, then buy.

    1Reply
  • Jack Srimani
    OP
    Real Estate Investor · roscoe, IL · Member since 2009 · 131 posts · 8 votes
    16y

    Thanks for your advise. I appreciate it. If you have few of the links for discussion of this topic I would appreciate it.

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  • Jack Srimani
    OP
    Real Estate Investor · roscoe, IL · Member since 2009 · 131 posts · 8 votes
    16y

    Thanks everyone for the great advises.

    0Reply
  • Nattapon Permchom
    Investor · Columbia, SC · Member since 2010 · 30 posts · 6 votes
    16y

    Rentometer.com can give you a ball park estimated for you rental properties. Just put in property's address, bedromm and it will give you a rough idea on the rent, then you can do some numbers if it looks like a deal, then you can call some rent signs and/or realtor.

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  • Account Closed
    Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes
    16y

    a quick tidbit....i was looking at a duplex the other day listed at 30k and didn't need more than 5k in repairs...i wondered how the heck the previous landlord couldn't win with rents of 400 per side....then i remembered that he paid 95,000 a few years back...maybe that duplex you're looking at didn't work at 55k, but it can work for you at 20....maybe the owner was out of state, or didn't know what they were doing....there's tons of maybe's...best to look into it as best you can, see what comps rent for, and if they're vacant or occupied...i try to stay away from a rental if there's a ton of for rent signs around the area bc that equals a lot of vacancies

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