First Deal

10 Replies

Hello,

I am currently in the midst of the first real estate deal. I have a property that the current assessed value is 168,000, and they are asking 144,000. I want to wholesale this deal by offering 135k and assigning it to a buyer for 140K. 

It is currently renting at 1300/month with ROI at 17%.

Since this is my first deal, would this be suitable investment for a buyer? I need an outside opinion. 


Thanks! 


Evan 

Its going to be hard for anyone to say without knowing more about the house, the area, and what houses in that area are selling for and how long they take to sell. The assessed value and it actual value could off. The numbers seem tight but you should find comp property sales in the area to determine its actual value and are there any repairs needed? You will need to provide more details in order to get the best answer Good Luck-Sam

@Evan Kummer  in my humble opinion I think you should first determine where you are getting the numbers from. When I look at properties to buy I could care less about what the assessed value is! What would that property sell for in your market in the same 1/4mi radius and same bed/baths. That is what I look at and then I use the old tried and true ARVx.70-repairs-(fee if wholesale)=maximum allowable offer(mao). I do not know about Canada but here in Indianapolis Indiana you cannot use the assessed values as they do not reflect market sales. In the end you need to determine that(with the help of a realtor if you do not have a license to access comparable sales). Let me know if you have questions I will try to help you!

Stephen Barton, Solid Rock Houses | [email protected] | 317‑694‑4774 | http://www.homesaleindy.com/stephen/

Hi Evan,

Hope you don't mind a Newbie jumping in on conversation.  So keeping that in mind, take my opinion for what it's worth,

Sam & Stephen are of course right in that that you need comps (comparative prices for similar properties) for the property, (which I'm presuming is a condo - as I understand avg Toronto price to be similar to Vancouver - about $800K). 

Alternatively, if you followed Quick Tip #1 for Buying Your first Property, then you already have a good idea of what fair market value is, (except you cannot compare what people are asking for properties, or assessments, but rather, what similar comps have sold for in same neighborhood). Tip #1: "Look at lots of properties before buying - Look at 100, make offer on 10, and buy 1".

Only way I know (and certainly the fastest way) to get comps is ask a Realtor. The rule is to get 3, (ie from 3 different Realtors). REI-friendly Realtors will work with REIs becasue they expect future business, (and I'd cut them a check anyways).

I'm new, but I think the Rules that work in the USA will not work in Canada, especially Toronto & Vancouver; the 1% rule, the 50% Rule, the 70% rule. They make me laugh! I think a $5K profit on an assignment is good, (after taxes & expenses), BUT it's all about the math.  Your selling price must truly be so well below market price that it will get snapped up (offer to same Realtors afterwards), unless your OK with buy & hold as an exit strategy - but 17% margin as a rental sounds risky in today's market. Alternate exit strategy - are you OK with living in it? 

If it is in fact a condo, then beware of new "Depreciation Reports" that are becoming law in BC, and perhaps Canada, making it mandatory (to the best of my knowledge) for Condo owners to some degree - I'm not sure of the details - but one $300K condo building I was looking at, asked each and every condo unit owner to cough up for $100K for repairs, (and that usually means cash, because remortgaging at today;s low rates could be costly).

Last time I was in TO, I saw what appeared to be 100's of new condo developments / buildings - and that looks like a buyers market to me.

Hope that was of a little help.  I would have kept quiet if I had seen at least one other Canadian pipe up.

Regards, and good luck.    Ross.  Vancouver Island, BC

Originally posted by @Evan Kummer :

Hello,

I am currently in the midst of the first real estate deal. I have a property that the current assessed value is 168,000, and they are asking 144,000. I want to wholesale this deal by offering 135k and assigning it to a buyer for 140K. 

It is currently renting at 1300/month with ROI at 17%.

Since this is my first deal, would this be suitable investment for a buyer? I need an outside opinion. 


Thanks! 

Evan 

Evan:

I presume this is a residential property (1 - 4 units).   You should have your realtor (buyer's agent) pull comps to see the prices at which similar properties in the area have sold recently.   If this is a private sale, hire a real estate agent/broker to pull comps or have an appraisal performed. 

The assessed value by the municipality/province for taxation purposes is frequently divergent from reality, making it quite meaningless as a benchmark.

Medium greenapartmenthires 1024x1024Roy N., Louer Louer Ltd. | 1.506.471.4126

Since it is a rental property you need to look at it as wholesaling an income stream. As such you really need to look at their financial records for the last few years. Can you post the numbers this thread?  If this property is by some chance in the Niagara area I may be able to refer you to a couple of buyers. I am originally from the area. 

Hello guys,

Thanks for getting back to me I appreciate the details.

It is a 5 bedroom legal duplex. 1 tenant renting out both for 1,300/month. It is fully renovated, siding, roof, floors, paint etc. Needs some tlc estimated at $5000. I have some comparable that range between 150k-170k. I will get more realtors to look at the property. 

as a canadian buyer always think what would a buyer want...great location, no external issues (train tracks etc) proper estimate of repair costs and Proper comps.

Also factor in if there is any way to increase rents as you mentioned tenant rents both duplexes so may be doing so at a discount so rental comps may be in order.

Medium pnj logo  preview  less whitePawan J., PNJ Property Group | 7789190519 | http://www.pnjpropertygroup.com

@Evan Kummer just curious how you came up with a 17% CAP Rate?

Since we don't have all the numbers, here's what I used for calculations:

  1. $150,000 all-in price
  2. $1300 rent
  3. -$130 vacancy
  4. -$140 property taxes [estimated]
  5. -$100 insurance [estimated]
  6. -$130 PM fees
  7. -130 maintenance

That only leaves a NOI of $8,040 or a 5.54% CAP

I lived in Calgary, AB for 5 years and know that it's hard to find properties that will cash flow.  At first glance, this one sounds over priced [IMHO].

@Evan Kummer  as stated above you need to make sure your numbers are correct your 17% rate on return does not seem accurate.  The main thing you need to focus on is making sure your numbers are correct any of your investors or back end buyers are not going to buy from you now or ever if you give them numbers that are in accurate and not potentially close to what the market is actually producing.  There are a lot of wholesalers that try to do business with me the only ones I actually look at or open their emails are the ones that know their numbers.  My opinion this property you would have to get close to $100,000 for it to make sense for an investor. Taking into account the numbers you have put on this thread.  Good luck to you

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