1st buy, and not so sure if I should just go for it
Los Angeles, CA · Member since 2016 · 24 posts · 11 votes
Soooo...I found this fixer upper property on MLS , it has been there for 3days so far. Its listed as duplex, but it has four units rented out . Looks like needs exterior paint maybe more, no due diligence allowed till offer excepted. Numbers: selling for 80K cash only, houses around in ok condition are about 100k. Each unit rented out for $ 600 /each x 4= 2400/m. My financial situation: I have big cc loans 0% apr till 11/17. To buy this property I would get hard loan and then re-finance . I have read a lot, listened to podcasts, books, webinars..i think i am ready, everybody says to just go for it. Should I just go for it or am I getting myself over my head? How long does the whole process usually take? Or maybe I should just buy and not rehab while tenants are there and then slow rehab as they move out and new ones come? Would really appreciate your 2cents!
Jeff and Rodney make excellent points. I can tell by your questions that you are very new to investment RE. No problem, we have to start somewhere. However, you are looking at a property that should only be considered by a very savvy, experienced investor. If you look at the investment from an altitude of 50,000 ft it looks crazy good. Buy at 80k and annual rents are $28,800. That is a 38% cap rate. Something is not right! So now we get a closer look at the property from 1000 ft above (sorry I'm a pilot). 1st thing we discover is that it is mis-classified as a duplex when it really is a 4 plex. Why and how did that happen? What could the legal consequences arise because of this? By your own admission you are in serious "bad" debt situation. If a miscalculation in buying this property occurs it could put you in a worse condition than you are now. Once you buy the property, you have to manage it. If your property is not up to code and is not legally a 4 plex the tenants can use that to their advantage and have leverage over you and any policies you want to enforce. I am not saying you should just walk a way from this property. Hell, you might have come a cross a deal of a lifetime, I doubt it, but anything is possible. I would proceed with EXTREME caution. Until you understand throughly why it is listed as a duplex with the county but really is a 4plex, I would not buy it. If you proceed to buy it, make sure you have a comprehensive inspection. One last thing, I just notice reading your post. They are only accepting cash offers. I suspect why is because it could be next to impossible to find a lending institution to fund this deal. That also means less oversight for the seller.
make the offer and make sure you have contengencies on inspection. You may be better served to look at this as a potential flip to generate some quick cash to get out of cc debt hell. These numbers don't seem possible in SoCal, is it out of state?
Buying an "un-inhabital" rental can be buying a big problem. A duplex with 4 units may have illegal conversions. If the city because of a complaint determines they don't meet code and are "un-inhabital" the tenants may not be obligated to pay rent. Due diligence for this du/four plex means extra diligence. It may be a good deal but investigate it carefully.
If you've got heavy CC debt, owning a rental with problems could be a disaster.
Where is this at? And I only ask because I'm curious as to why someone who has a property that brings in 2400/month wants to let it go for only 80k.
Is this place near you? Who will manage and market it?
Is it in a bad neighborhood and/or have high turnover tenants?
What's it going to cost you a month to own it including everything?
How is it a duplex with 4 units rented...is it a legal 4 plex or did someone get crafty and make it that way without permits?
Sounds like you'd end up committing to an expense inspection and appraisal (both will cost more than usual evaluating 4 units) to find out how bad the property is and have to walk away
Jeff and Rodney make excellent points. I can tell by your questions that you are very new to investment RE. No problem, we have to start somewhere. However, you are looking at a property that should only be considered by a very savvy, experienced investor. If you look at the investment from an altitude of 50,000 ft it looks crazy good. Buy at 80k and annual rents are $28,800. That is a 38% cap rate. Something is not right! So now we get a closer look at the property from 1000 ft above (sorry I'm a pilot). 1st thing we discover is that it is mis-classified as a duplex when it really is a 4 plex. Why and how did that happen? What could the legal consequences arise because of this? By your own admission you are in serious "bad" debt situation. If a miscalculation in buying this property occurs it could put you in a worse condition than you are now. Once you buy the property, you have to manage it. If your property is not up to code and is not legally a 4 plex the tenants can use that to their advantage and have leverage over you and any policies you want to enforce. I am not saying you should just walk a way from this property. Hell, you might have come a cross a deal of a lifetime, I doubt it, but anything is possible. I would proceed with EXTREME caution. Until you understand throughly why it is listed as a duplex with the county but really is a 4plex, I would not buy it. If you proceed to buy it, make sure you have a comprehensive inspection. One last thing, I just notice reading your post. They are only accepting cash offers. I suspect why is because it could be next to impossible to find a lending institution to fund this deal. That also means less oversight for the seller.
I'd do more research on the property and actually take a look at it in person. Take notes of everything it needs and like everyone else is saying, make sure you can even rent it legally with how the current owner has it rented. 80K for $2,400 a month sounds off. If it was legit I don't see why its still for sale. Something like that would of been gone within 24 hours in my area.
@Lee S. It's in Lamont, CA, city closer to Bakersfield , CA
@Jeff Keller Thank you very much! It's a very good point that I will look into!
@Rodney Sums It's in Lamont, CA it's about 3 hrs drive away from me. I would manage it myself and if that will south I have 2 management companies in the area that I have talked with..then i will have one of them take over. I don't know much about neighborhood...still looking into it. How can I figure out about neighborhood, should I just go down there or can I research it online, or ask PMs? I don't know about permits to rent it out as 4plex either. Thank you for brining it to my attention! those are very important points that i didn't think of! So glad to have this community Thank you thank you thank you!
How can I calculate what is going to cost me monthly? I just calculated my mortgage and taxes would be $500, $400-500 for future costs and vacancies.
@Joe Scaparra Yes it does sound too good to be true! I loved that pilot analogy :)) You have very good points. Thank you!
@John Burtle Yes I thought it would be gone within 24 hr too. When i first sat it , it was on market for 9hrs or so, I even panicked to get it fast, and then thought should not make any rushed decisions.
@Sanjeev Advani thank you, yes you are right! What do you think about Lamont area overall? What are the good areas in Bakersfield ?
At this point in time your posts indicate clearly that you do not know very much about income investing or property purchasing in general. This is high risk and there are plenty of failed investments. You are not ready to proceed with a purchase at this time. You need to spends about 6 months of intensive reading and education on the subject before you actually consider a purchase. You also need to learn all your state landlord tenant regulations first.
You have much to learn before you are ready to begin to think about buying anything.
You should also clear all your bad cc debt before you think about investing otherwise your bad debt will be the least of your worries.
@Josh Rowland, thank you very much, it totally makes sense of its that good of a deal why is it on MLS...NOTED! Thank you for taking your time and chewing it out for me!
I would advise against managing it yourself. As soon as you have your first vacancy, you will be regretting everything. I tried to manage a fourplex that was only 1 hour away. Appointments to show the apartment to prospective tenants became quite painful.
Soooo...I found this fixer upper property on MLS , it has been there for 3days so far. Its listed as duplex, but it has four units rented out . Looks like needs exterior paint maybe more, no due diligence allowed till offer excepted. Numbers: selling for 80K cash only, houses around in ok condition are about 100k. Each unit rented out for $ 600 /each x 4= 2400/m. My financial situation: I have big cc loans 0% apr till 11/17. To buy this property I would get hard loan and then re-finance . I have read a lot, listened to podcasts, books, webinars..i think i am ready, everybody says to just go for it. Should I just go for it or am I getting myself over my head? How long does the whole process usually take? Or maybe I should just buy and not rehab while tenants are there and then slow rehab as they move out and new ones come? Would really appreciate your 2cents!
Most definitely worth investigating further. There is a casino/thousands of homes slated and under way kind of nearby. Btw that is maybe 90 mins with no traffic.
Hi, Ida,
I don't know if those rents represent market rent or not. I don't know the taxes and other pertinent financial info. Having said that, If you want hard money, they usually want a 65% LTV. I believe you would be at an 80% LTV ($80K purchase on a property valued at $100,000). Also, if you can get hard money, make sure you can refinance before taking the loan. Can you private money on it at a more reasonable interest rate than hard money?
Does your municipality require a certificate of occupancy on a resale? if so, you may not have any choice but to make repairs.
Do the current tenants have leases? Have you seen them? Who is responsible for water/sewer, utilities, minor repairs, etc.?
I am not trying to scare you or tell you not to take the plunge. I am urging you to do your thorough due diligence first though so you do not get burned.
Just food for throught.
Good luck!
WHOO that property sounds risky. I would focus on paying down the CC bills (because buying properties....things can go wrong and you may need that CC flexibility to pay for whatever needs fixing) while you keep getting more education. There are ton of things you are missing in all of this- risk of extremely low-paying tenants, risk of extremely cheap properties (trust me, even a SFR in LA at $80-100k is beyond risky and most definitely an MFR (especially one that is permitted as 2 units but 4 are being rented out), due diligence to find the actual condition of a property (thinking something only needs paint is dangerous), etc.
I don't say all of that to get on you or sound harsh, but you could be putting yourself into a dire financial situation moving forward on a property like that, especially when you have CC debt.
@Thomas S. Thank you , yes I am very very fresh :) I should learn a loooooot more, and it could most likely burn me , and I would hate to burn with my 1st purchase with my current cc situation. What other resources do you recommend to learn from other than BP? What really helped you when you first started?
@Ali Boone Yes that was another thought i had, but that deal was soooo appealing, but you are right, I should not rush.. I will focus on paying off the cc first and keep learning at the same time. Thank you :)) Love the name Hipster Investments!
Dont be afraid of the people that say something isnt right. They just live or invest in a part of the country that you cannot find these deals. They are out there. I just closed on a 35k property, put 7k in to fix up, and rented the first 2 units in 3 days. So i spent a total of 42K and the 3 apartments will bring in 20k per year (Cash flow a little less than 9k)
Just do the comparisons - what are other duplex or 4plexes going for? Then what are they renting for? If they compare well, then it should tell you if something is "off".
If there are already renters in it, let them stay as long as they want and collect the rents. When they move out, rehab, and up the rent if you would like.
Run ALL the numbers through the deal analyzer that is on the files page. It is priceless. it will tell you what your cashflow will be after you factor in taxes, capex, maintenence, etc.