Newbie/first deal. Please help me run the numbers!
Hi all,
I'm new to BP but have been reading and listening to as much as I can in the last few months. My husband and I live in and love LA. I run my own business here, and in the short-term (10 years-ish), I don't see us leaving this city. I've got about 35K in cash that I had originally been stocking away towards a down payment, but since finding BP, I'm realizing I could be doing a lot more with that money and thinking far more creatively. I have no desire to create cash flow that will allow me to leave my current field- I love my work and my business is in great shape. But I do want to invest in real estate, and I'm eager to learn from those willing to offer advice.
The most attractive option we've got currently involves a family member. She owns a home in the Pacific Northwest and has been renting it successfully for 20+ years. It's in the best possible neighborhood in the city (according to friends, realtors, and the county assessor), and she wants to sell to us below market price. We're not interested in significant monthly cash flow- I envision holding the property for a few years, doing some light rehab along the way, then reselling and walking away having hopefully at least doubled our initial investment. Here's the sticky part. This is a family member I love and care deeply about. She needs the money, and though I am very excited to have a back door into a great rental property, I don't want to take advantage of her. She originally quoted us a price that, according to comps, is at least 25K below what she could get, if not more. So, we're looking at setting a purchase price in the coming months, and I'd really appreciate feedback on what numbers make sense and what numbers don't, given our goals. Here are the numbers I can count on:
Rent: Between 1100-1300K/month
Fixed Expenses (not including maintenance or capex): $230-350 (depending on whether we use a PM or not)
Down payment: 20%
End game goal: To sell after holding and double our initial investment
Price of home: She originally quoted us 125K. My nascent research on comps says it's worth at least 150K if not 175K. (I'm a newbie, remember. I'm not too confident in my ability to assess the home's market worth.) Homes in this area have been increasing at quite a clip, and according to the county assessor, it's a bulletproof neighborhood because of it's proximity to great schools, parks and low crime.
So....what's the magic number, all? If we get an appraisal and he comes back at 135K, I think it makes sense because we could subtract the realtor costs from our buying price since she won't have to list. But if it comes back at 170K, that's murkier. There are several comps within 0.5 that have sold for between 200-215K in the last 6 months (with some rehab), which we could also do and reap the benefit of after she sells to us. My relative has taken awesome care of the house, so it would need cosmetic touches most likely, nothing more substantial, and we'd have a complete and honest history of the capex over the past 30 years of ownership.
What do you suggest? Are there options I'm missing? What numbers do you think shake out?
Thank you in advance for any education you can give me!