NEWBIE: What I'm Looking for, and is it Realistic?

11 Replies

Hey everyone!

I'm looking to purchase my first property! It's exciting but I've been at it for a while and it's been tough to find something. I'm in a high market right now (near Sacramento CA, Amador County to be specific) so that is part of the issue, but I believe there are deals everywhere. So I just wanted to put out WHAT I'm looking for and see if I'm being realistic. 

1) Planning on purchasing an SFR with a live-in-flip type strategy

2) If it is fixer than I want 20% equity in deal (i.e. if the home's ARV is $300k then my max purchase price is $240k minus repair costs)

3) If its not really a fixer, or minimal fixer then I want at least 15% equity (home with ARV of $300k then my max is $255k minus repair costs)

I've offered on a couple properties so far, both were rejected, which is fine. I'm ok being rejected and I think it's going to take several offers before I find someone willing to sell at this type of discount, but I feel like it will be worth it in the end. 

But what do you guys think? Is getting 15-20% equity a realistic goal in a hot market? Am I out of my mind? Advice, support, stories, etc. would be appreciated! Thanks!

I don't know your market, and I'm not saying this is a actual negative possibility, but something to consider.

If you're getting deals in a hot market that are ~20% devalued, they might not make live-in requirements. This is common in my market for instance. If that is the case, you can't get a traditional residential loan on a property like that.

Also, if the deal is 20% cheaper do to it being a 'fixer' then it's likely you'll have to put in 20% into it to extract that value.

You're looking for value add, the difficult part is finding a value-add property that will allow a debt service and move in

If it's not a fixer, why would anyone let you buy at a 15% discount? especially in a hot market?

None of this is impossible. Also, you can gauge how realistic you're being by the conversations you have with your realtors. ;)

hey justin, 

I too am in the market for my first home in the Sacramento area and I have been looking at a couple properties in Sacramento and just north in the Marysville, Yuba City area and I have found quite a few properties selling around 70% of market value in almost move in ready condition, so asking 15/20% I think is very doable, the deals are out there it's just finding them, of course im very new to this whole thing so im hoping someone else will chime in also, to confirm or deny, I think you will make that happen if you stay at it, best of luck to you in all your ventures!!!

All they can do is say no. I sometimes just go around offering half of asking price just to see what people say. I've actually bought 2 places like this. 

I think one thing that's often overlooked here is why would a seller sell you the house below market? There's no shortage of buyers that'd want a discounted house and some will also be all cash. Some will say the wholesale route.... but again most good ones have clients lined up and unless you have a relationship you're probably not seeing the good deals.

Now this isn't to say you can't find a deal... rather it's to help you look at "deals" differently than those that likely passed on it before you.

@Justin Koopmans I think you are going about it the right way. You have to look at 100 properties make offers on 10 to get one. You may need to adjust your numbers a little bit if you ever want to buy something and remember you will have to pay up for quality and good school districts. It makes it much harder. keep looking and making offers.

Thanks everyone for the responses! @Derek E. you're totally right and that's awesome that you've bought a couple places like that! I'll just keep going like you say @Alex Deacon and keep offering. Hopefully I'll find a seller that just wants to be done and will accept 20% less than asking. We'll see! Once I find something I'll let everyone know :)

Originally posted by @Justin Koopmans :

Thanks everyone for the responses! @Derek E. you're totally right and that's awesome that you've bought a couple places like that! I'll just keep going like you say @Alex Deacon and keep offering. Hopefully I'll find a seller that just wants to be done and will accept 20% less than asking. We'll see! Once I find something I'll let everyone know :)

 Don't get blinded by chasing such exact deals, you're doing a live in flip. If you're living in it to get around the taxes you're going to be there for a while.... you could try to go after some appreciation. Let's say you find a deal that's 10% below market (which is much more realistic than 20%). You do short inspection (or maybe none), quick close, all cash offer even. Then say you get it a list, now you have the chance for some updating. Let's say you do minimal updates really just cosmetic stuff but it's cheap and it bumps you 5% and let's say you spread it out over time, 2.5% per year. Now 2.5% appreciation is a pretty safe conservative number, again 2 yrs that's another 5%, now your at 20%.

Now, let's say you bought the ugly house on the block.... and let's say the seller had to sell it because of some time sensitive deadline so you getting it at list is actually a deal when most those houses go over list. Or let's say there's some flips in the area that just recently sold and are being rehabbed... either way it's likely in the foreseeable future the comp values are going up.


I guess my point is there's way to get deals that don't meet the 20% but can still perform well.... you just have to learn to look at it differently than everyone else to see their true value.

Hey Justin,

Take this advice with a grain of salt as I have yet to secure my own property! But having asked a lot of the same questions you’re asking I’ll tell you what people on here have told me.

Don’t chase the numbers! It’s all a per house basis within your market. So a 20% discount could be great in Sacramento but terrible I’m RI (just an example). See what I mean? A 20% discount on a brand new home would be awesome. A 20% discount on a burnout would be a pretty tough bargain. So I guess to answer your questions fully we would need to know a little bit about your potential deals.

To the points about the 100 deals and make offers to 10 to get one. You still need 100 good deals first. Right? Or maybe people have had success by random direct mail and things like that? Idk like I said I’m a noob too.

My two cents!

Tom

Here's what I would suggest if you're looking for discounts in a hot market/area. Find the houses that have been sitting the longest. Then don't be afraid to make an offer 20% or 25% below what you think it should be worth. But be careful, 20% off list price doesn't mean you're getting a 20% discount. You need to run your numbers and come up with a value on the home and then see what 20 or 25% off that value should be. Thats the number you should offer.

But the reality is that you can always get those kinds of discounts on properties no matter what the market. Its obviously more difficult in hotter markets. But there isn't a market in the country right now where investors aren't buying homes at discounts and aren't making money at flipping or buy/hold.

And the hotter the market the more the opportunities will be ebb and flow. i.e. When its hot, you might go 6 months with nothing and then hit on 1 or 2 deals in a mmonth. When its cold, you might be able to grab one a month every month for a few years running.

The key is to check all your sources all the time. MLS, auction sites (i.e. auction.com, hubzu, etc), and the govt sites (hud, fannie mae, etc). If you do that and you're putting in bids at your numbers, you will get a deal.

I would say at least in my part of California your numbers would be difficult to find, and I would assume that most large cities in CA would be similar, if there are enough buyers why would anyone sell below market. In Southern California there are also enough flippers/ investors that there is basically a market floor for those type of properties as well and it is about 75% ARV without subtracting repairs. If your Realtor has worked with investors before they should be able to tell you if your expectations are realistic better than all of us who aren't familiar with your market.

Yes, at higher price points. There is not much equity available for live in flips under $508k (Soon to be about $540k). When you get above $600,000 there are a lot of options in Sacramento for dated homes that have a ceiling in the $850-950k range. Message me if you want to see a handful that I have analyzed for clients.

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