First time deal. On the fence about this property!

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First time deal. On the fence about this property!

Tamyra Campbell
Investor · Dallas, TX · Member since 2016 · 21 posts · 6 votes

Hi BP Fam,

This is my very first deal after being a renter for 10+ years in East Dallas. The property that I'm inquiring about has 3-parts to it. The main house is 1324 sq ft. The Duplex in the back, (that's currently being used as storage) is 1400 sq ft.  And the property also includes a mini guest house, that's 616 sq ft. All together the land lot is 7492 sq ft. The main house is ready to move in, the owner has added upgrades to most of the features. The mini house has a tenant that's been there for about 8 months. 

Now my main concerning is the duplex - it needs a major renovation! (Which would be ideal for my elderly mom to live in).

The owner is asking $349k. Similar houses in the neighbor are going for $320 - $390. The property was built in 1933 so it has charm and character, which appeals to my creative side. 

I'm wondering if this could be a bad first investment because the house has been on the market for several months. It's also, has dropped it's price by $27, 000 in the last few weeks; which brought it to the current $349k.

I'm going to see the property again tomorrow with a few friends who are experts in the building industry - just to make sure I'm not getting in over my head; but at this point I really admire this property. 

I know it's going to be at least a good $100k and a 1-year commitment just to get the investment property up and running completely.

Should I stay the course, and see it through and negotiate a better asking price - because of the major renovations need...or as a beginning investor, should I start with a bit smaller house? Any advice is appreciate. 

BTW...if your a real estate investor in the (Dallas 75214) area, I'm looking for mentorship as I begin my investment journey. Thanks guys!!!

Tam-

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Account Closed
Investor · Denver, CO · Member since 2016 · 736 posts · 582 votes
9y

My thoughts -

If this is a house you are buying to move into, and to move your Mom into, then this is your home...it's not an investment property.  It's your home.  I would move in, fix up the main house, then work on the duplex out back a little at a time so you can move your Mom in.  Once you two are settled and doing OK, then work on the third place and get it fixed up.

I look at things a little differently...home is where the heart is...especially if you're moving your Mom in with you.  Take care of the family first, get things cleaned up, then look at the next house for an investment and move up.

You could move other folks in, but your Mom is going to want the best for you and she's going to be more stressed out about your tenants than you will be (I know my Mom would be).

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  • Sean Edrington
    Rental Property Investor · Dallas, TX · Member since 2017 · 9 posts · 2 votes
    9y

    Tamyra,

    I am no expert by any means and I haven't even made my first deal yet. However, I am about 100 episodes in to the BP podcast so I'm getting there;) My advice, again take it w/ a grain of salt, would be to not do the deal.

    You mentioned comps are between 320-390 for similar properties, the property you are looking at purchasing is currently at 349, you said you would have approximately 100 in rehab costs, and with a 1 year commitment you will have massive holding costs. I know Dallas is a good area, but unless you expect enormous appreciation I would be very cautious with this one. Certainty, not what I envision my first deal looking like.

    Again, I could be completely missing the boat. But lets open up a discussion and see what others have to say! Keep learning and growing!!

    Sean

    1Reply
  • Jibran Najmi
    Real Estate Agent · Arlington, TX · Member since 2016 · 84 posts · 36 votes
    9y

    @Tamyra Campbell

    This sounds like a very unique property and could possibly be a deal.  I would also say that all of your questions are fantastic questions for your Realtor.  Realtors are obligated to be fiduciaries to you (they put your interests ahead of their own) and as a buyer there literally is no reason to not hire one as the seller pays their commission.  Have you contacted your Realtor and discussed this with him/her?

    0Reply
  • Bart H.
    Dallas, TX · Member since 2016 · 1k+ posts · 745 votes
    9y
    Originally posted by @Tamyra Campbell:

    Hi BP Fam,

    This is my very first deal after being a renter for 10+ years in East Dallas. The property that I'm inquiring about has 3-parts to it. The main house is 1324 sq ft. The Duplex in the back, (that's currently being used as storage) is 1400 sq ft.  And the property also includes a mini guest house, that's 616 sq ft. All together the land lot is 7492 sq ft. The main house is ready to move in, the owner has added upgrades to most of the features. The mini house has a tenant that's been there for about 8 months. 

    Now my main concerning is the duplex - it needs a major renovation! (Which would be ideal for my elderly mom to live in).

    The owner is asking $349k. Similar houses in the neighbor are going for $320 - $390. The property was built in 1933 so it has charm and character, which appeals to my creative side. 

    I'm wondering if this could be a bad first investment because the house has been on the market for several months. It's also, has dropped it's price by $27, 000 in the last few weeks; which brought it to the current $349k.

    I'm going to see the property again tomorrow with a few friends who are experts in the building industry - just to make sure I'm not getting in over my head; but at this point I really admire this property. 

    I know it's going to be at least a good $100k and a 1-year commitment just to get the investment property up and running completely.

    Should I stay the course, and see it through and negotiate a better asking price - because of the major renovations need...or as a beginning investor, should I start with a bit smaller house? Any advice is appreciate. 

    BTW...if your a real estate investor in the (Dallas 75214) area, I'm looking for mentorship as I begin my investment journey. Thanks guys!!!

    Tam-

     I dong think it will be a good investment.  Betting each side will be about $1,500 (if the place is in good condition), then add $700-800 tops for the guest house.  ( and I may be generous on the rents.) or $3,700 -$3,800/month total

    IF the place really requires $100K in repairs...puts you all in at $449K.  Throw in 6-7K in taxes and a couple grand in insurance.

    Unless you have a lot of rehab experience, I would stay away from a rehab project on my first house.  Also, I used to own a duplex near there. (live oak and skillman).  Those duplex's have run up really fast.  Maybe if you are willing to house hack, but otherwise well priced properties where you are looking for, especially duplex's are on the market only a couple of days.

    0Reply
  • Greg P.
    Dallas, TX · Member since 2016 · 49 posts · 16 votes
    9y

    One thing to note is I would check the zoning laws at the address.  Maybe not a deal breaker, but if it's single family zoned, Dallas is pretty strict about income producing detached units.   Not that bending the rules stops everyone.  But before I spent 100k in renovations and paid a ton of money to have extra "doors" I would think about it.

    1Reply
  • Jay Dean
    Investor · Manvel, TX · Member since 2016 · 133 posts · 54 votes
    9y
    You haven't really given us a complete run down on your income and expense estimates. You need to run these numbers. When you walk it the second time, see if you can get a contractor to come along. Your rehab cost ls are a key and important part of your analysis. Analyze the numbers and the deal. All of that said, this does not sound like a project for a first timer.
    1Reply
  • Edwin Borrero
    Plano, TX · Member since 2017 · 30 posts · 11 votes
    9y

    @Tamyra Campbell I think I know exactly what property you're talking about! 

    @Kenneth McKeown - I believe I showed you this one as well. 

    It looked very interesting from my quick glance at it. Didn't realize it was essentially 3 different units. 

    0Reply
  • Chris Willis
    Dallas, TX · Member since 2017 · 2 posts · 1 vote
    9y

    Having just gone through some permitting for our primary residence, I found out there are restrictions for adding kitchens in detached properties that didn't already have one (grandfathered in prior to the ordinance). I wasn't clear on if it was a Dallas ordinance or a conservation district one. The definition of kitchen was also very strict since they know landlords will put a counter and sink with no stove to try and skirt the rules. The numbers and location you are talking about may put you in one of these districts so expect double the oversight as well as doubly nosy neighbors that will happily report you for violations.

    0Reply
  • Tamyra Campbell
    OP
    Investor · Dallas, TX · Member since 2016 · 21 posts · 6 votes
    9y
    Originally posted by @Sean Edrington:

    Tamyra,

    I am no expert by any means and I haven't even made my first deal yet. However, I am about 100 episodes in to the BP podcast so I'm getting there;) My advice, again take it w/ a grain of salt, would be to not do the deal.

    You mentioned comps are between 320-390 for similar properties, the property you are looking at purchasing is currently at 349, you said you would have approximately 100 in rehab costs, and with a 1 year commitment you will have massive holding costs. I know Dallas is a good area, but unless you expect enormous appreciation I would be very cautious with this one. Certainty, not what I envision my first deal looking like.

    Again, I could be completely missing the boat. But lets open up a discussion and see what others have to say! Keep learning and growing!!

    Sean

    0Reply
  • Tamyra Campbell
    OP
    Investor · Dallas, TX · Member since 2016 · 21 posts · 6 votes
    9y

    @Sean Edrington Thanks for your comment! I'm still analyzing the property to week, so trust me. I am taking my time on my first investment. I'm running the numbers from every angle from creative, traditional, and private financing. I will be sure to keep you guys posted.

    1Reply
  • Tamyra Campbell
    OP
    Investor · Dallas, TX · Member since 2016 · 21 posts · 6 votes
    9y

    Hi @Jibran Najmi, yes I have been in communications with my realtor constantly. We are both in the same position as far as "new investor" / "new realtor", so we are both constantly learning together. I think it is true for what I've been learning on BP, the Investor and the Realtor are two difference species. We are thinking about this property from a different perspective. I have no doubt he's looking out for my best interest, he's just applying what he's learned, just as I'm constantly in learning mode as well.

    0Reply
  • Tamyra Campbell
    OP
    Investor · Dallas, TX · Member since 2016 · 21 posts · 6 votes
    9y

    @Bart H. @Greg P. @Jay Dean Thanks for your comments and advice!

    0Reply
  • Tamyra Campbell
    OP
    Investor · Dallas, TX · Member since 2016 · 21 posts · 6 votes
    9y

    Thanks @Chris Willis for the advice and heads up!

    0Reply
  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    9y

    @Tamyra Campbell 

    Have you looked into what kind of financning you'd be able to obtain on this property? 

    It sounds like the duplex won't qualify for financing at all- and often multiple properties on one parcel can be tricky as well. I'd make sure you clear things with a mortgage expert before diving deeper. 

    @Chris Mason may have some insight 

    Podcast Guest on Show Pay Less Tax to the IRS This Year With THESE Real Estate Tax Strategies
    Kolodij Tax & Consulting
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    1Reply
  • Henry LiChi
    Developer · Long Beach, CA · Member since 2016 · 109 posts · 75 votes
    9y

    It is a pretty sweet deal at first glance.  But would need estimated proforma to justify.  

    Just wondering, how did you estimate 100k rehab cost on a 1,400 SF duplex?  That's over 71$ per sf rehab, which puts it at the higher end of rehab estimates with very high quality material.  

    Regardless, you have to look at it as 4 units on one property.  Numbers have to make sense for when you live in it, just as much as when you move out.  At 349k purchase, you're looking at under 1800$ per month mortgage payment.  I would factor in, how much rent you'll get for one of the duplex units + the mini house.  Does it get close to 1800 per month?  If so, you pretty much have your mortgage paid for and you're just paying for expenses/insurance/property tax instead of rent.  Of course, this doesn't factor in the renovation cost to bring the duplex to rent ready status.  

    Also, are the similar houses in the neighborhood that are going for 320-390k all the same criteria (main house, duplex, with mini house or 4 units, I would doubt that).  If it has been sitting on the market for several months, more than likely, you can offer a lower price than the 349k.  Find a number that works for you, worst that can happen is the seller says no, or counter.

    0Reply
  • Tamyra Campbell
    OP
    Investor · Dallas, TX · Member since 2016 · 21 posts · 6 votes
    9y

    Thanks @Natalie Kolodij will do!

    Hi @Chris Mason, please let me know if you have any insight. 

    0Reply
  • Account Closed
    Investor · Denver, CO · Member since 2016 · 736 posts · 582 votes
    9y

    My thoughts -

    If this is a house you are buying to move into, and to move your Mom into, then this is your home...it's not an investment property.  It's your home.  I would move in, fix up the main house, then work on the duplex out back a little at a time so you can move your Mom in.  Once you two are settled and doing OK, then work on the third place and get it fixed up.

    I look at things a little differently...home is where the heart is...especially if you're moving your Mom in with you.  Take care of the family first, get things cleaned up, then look at the next house for an investment and move up.

    You could move other folks in, but your Mom is going to want the best for you and she's going to be more stressed out about your tenants than you will be (I know my Mom would be).

    3Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    9y
    Originally posted by @Natalie Kolodij:

    @Tamyra Campbell 

    Have you looked into what kind of financning you'd be able to obtain on this property? 

    It sounds like the duplex won't qualify for financing at all- and often multiple properties on one parcel can be tricky as well. I'd make sure you clear things with a mortgage expert before diving deeper. 

    @Chris Mason may have some insight 

    You may get jammed up if trying to obtain residential financing if it's not zoned/permitted/etc for a 4-unit property. Sometimes people (most commonly a seller that's owned it free and clear for decades) start plopping trailers down, throwing kitchens in garages, etc, and want us to lend on it as if it's a 4 unit property, not an SFR with illegal trailers and kitchens thrown about, and that's a no-go.

    The 5 unit counts of residential real estate acknowledged as existing by Fannie/Freddie are...

    • SFR
    • SFR w/ ADU (Can't count rental income from an ADU, and if buying as an owner occupant it's assumed you will live in the main unit, so no rental income from that either. Normal SFR LTV/rate/etc.)
    • 2 unit (CAN count rental income from both units. Duplex LTV/rate/etc.)
    • 3 unit
    • 4 unit

    If it can't fit into one of those boxes, and the appraiser makes note of that, you are likely to get jammed up. Commercial or hard money financing may be available. The price of a definitive answer is, unfortunately, an appraisal fee.

    The good news is that if this thing cannot be financed as residential, that will be true for every other buyer out there too, meaning it's time for a price reduction due to the limited marketability of the property in question. What % of US home values do we think can be attributed to 30YF low rates? 15%? 30%?

    2Reply
  • Tamyra Campbell
    OP
    Investor · Dallas, TX · Member since 2016 · 21 posts · 6 votes
    9y

    UPDATE: 

    Hi BP, this is an update from my most recent post on a Dallas Property. 

    The owner has gone down from the original asking price of $379k for 3 properties around July 1st, (1 main house, 1 completely unfinished duplex / Garage, and 1 mother-in-law suite).

    In mid July it dropped down to $349 with the mother-in-law as an option to buy. Now the owner has dropped the price again as of 2 days again to $329k with no mention of the mother-in-law suite.

    Now this is what I've discovered on my own. Major foundation problems with the main house, including no up to date gutters. Water damage in the ceiling that was covered up and a secret addition that was added to the house that may not be in the original design size estimate of the main house. 

    I've had 3 of my trusted landlord friends to come inspect the house. One said they would completely tear down the main house, and live in the mother-in-law suite. The other said it has potential but, is the work worth the cost and headaches. And my last friend sees all the potential, but the asking price don't reflect the cost amount of updating to his property. 

    Also, when I looked up the property, the landmarks that the mother-in-law suite is on isn't the same zoning line as the main house and deplex, but all 3 properties use the same drive way to the back parking lot which is really confusing.

    My question is... what could be the reason the owner is dropping the price so rapidly? From a cosmetics standpoint, the house is set up fine with fresh paint and new tiling. Ready to live in for the short term.

    Should I just monitor the cost? Go talk to the landlord? Or have my realtor to contact him.  My budget is $245k. 

    Any advice is appreciated!  Thank guys...Tam -

    1Reply
  • Tamyra Campbell
    OP
    Investor · Dallas, TX · Member since 2016 · 21 posts · 6 votes
    9y

    Thanks @Henry LiChi! Of course I haven't been into real estate investing for very long, but after 10 years of renting, I've heard that voice inside of of load and clear that,  It's definitely time to invest".  I still learning how to run estimates and numbers with the help of the BP and my local community. 100k can be over or under estimating at this point, because of my knowledge. Also, the owner seems as though he's really ready to get rid of it because of how long it's been on the market. In the meantime, I'll continue to study, strategize financing, and monitor the property. 

    0Reply
  • Tamyra Campbell
    OP
    Investor · Dallas, TX · Member since 2016 · 21 posts · 6 votes
    9y

    Hi @Account Closed Yes, as a 10 year renter, this will be my home. The roles are definitely reversing where the child has become the caretaker. I'll keep my eyes on my "WHY" which is my Mom who need to be taken care of first. 

    Great advice Ed, I'm loving meeting you all here on BP!

    0Reply
  • Henry LiChi
    Developer · Long Beach, CA · Member since 2016 · 109 posts · 75 votes
    9y

    @Tamyra Campbell

    Him being motivated to sell can be used to your advantage.  The duplex not being fixed up and rented is a sign that the seller wants to get rid of it.  If everything was fixed up and the seller is cash flowing nicely, he can just sit on the market waiting for a full price offer, but with half his units not being rented, he can be in the hole or barely breaking even (depending how much he is getting for the other two units).

    0Reply
  • Tamyra Campbell
    OP
    Investor · Dallas, TX · Member since 2016 · 21 posts · 6 votes
    9y

    Great insight @Henry LiChi. Should I go and talk to him personally to see where his thoughts are? Should I have my realtor to contact him once I have cash handy? Or wait until it reaches below $300k, then make my move?

    0Reply
  • Greg Hamer
    Real Estate Agent · Carmel, CA · Member since 2015 · 193 posts · 128 votes
    9y

    and to think a little further down the line...  how easy is the property to unload when you want to sell.  Weird properties have a tendency to sit on the market for a while.  Can you handle that uncertainty?  Does the nieghborhood support weird homes like this, or is it the only one?

    0Reply
  • Tamyra Campbell
    OP
    Investor · Dallas, TX · Member since 2016 · 21 posts · 6 votes
    9y

    Hi @Greg Hamer, the neighborhood can definitely support the overall home and lot value. This neighborhood has construction of new apartments on almost every block, plus just around the corner is a well-known historic street with mansions. 

    This is indeed one weird property! The way that it's laid out and priced seems off for any experienced investor. Currently, I'm just sitting and waiting to see what the end of this month is going to look like. 

    In the meantime, I'm going to continue to study, educate, evaluate the whole scenario. Thanks!

    0Reply
  • Henry LiChi
    Developer · Long Beach, CA · Member since 2016 · 109 posts · 75 votes
    9y

    @Tamyra Campbell

    You should let your realtor do the communication.  I wouldn't wait for it to go below 300k, if it even does.  If you think 300k is feasible, go ahead and offer it.  I never pay full price offers on my properties, and have gotten some for less than half the original asking price.  

    @Greg Hamer, this is very true.  Any offers I make on my properties are always below asking not because I am cheap, but because I want to be able to exit if it doesn't work, without losing money.   

    Always have an exit strategy.  It may be different if you're an owner occupant, but if you're not able to fix up the duplex and only the mini house in the back is getting any sort of income, would you still be able to float?

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